Book Reviews

BOOKS Deregulating Freight Transportation by Paul Teske, Samuel Best, and Michael Mintrom The AEI Press. 1995 • 236 pages. $39.95 Reviewed by Burton W. Folsom, Jr. D eregulating Freight Transportation is a thoughtful and timely book written by Paul Teske, Samuel Best, and Michael Min trom. The authors describe how the move ment to deregulate transportation finally succeeded and how it is saving the U.S. economy billions of dollars each year. Much of this book is the story of the ICC (Interstate Commerce Commission) and the CAB (Civil Aeronautics Board) and why railroads, trucking, and the airlines were so inefficient during much of this century. The authors describe the origin of state and federal regulation. The ICC was empowered in the early 1900s because some shippers complained loudly about rebates and rate discrimination. Railroads gave rebates to large shippers who did volume business; railroads also gave discounts to shippers who did business along the well-traveled routes. To the railroad owners, this behav ior simply followed good cost-benefit anal ysis. The fixed costs in railroading meant that shippers with small loads and shippers who lived in remote areas were expensive to service-therefore, they should pay more.

What small shippers lacked in economic clout they offset with their political muscle. They lobbied state legislatures and later Congress to get laws passed that fixed rates and regulated the railroad industry. The regulating of the trucking industry followed in the 1920s and 1930s, and the CAB in airlines followed the ICC model in the 1930s. According to Teske, Best, and Mintrom, federal regulation meant fewer transporta tion options, higher prices, and industries governed by the politics of lobbying, not the economics of competition. Much of this 587 was exposed in the 1970s. Intrastate rates, which were not always subject to regulation, were often discovered to be remarkably low. Southwest Airlines in Texas and Pacific Southwest in California became models of low costs and excellent service. Senate hearings in 1975 exposed the inefficiencyof the regulated airlines. The resulting clamor led the airlines to "experiment" with com petition and free markets. Consequently, passenger fares dropped 30 percent from 1976 to 1990.

The presence of frequent fliers and busy travel agents led to demands that trucking and railroads follow suit. The ICC was under fire and could barely justify its exis tence to critics. During the 1980s and early 1990s, Teske, Best, and Mintrom describe the initial dismantling of the ICC and how shippers have profited. The authors, in fact, recommend the abolition of the ICC and also an improved single base-state system to meet varying state standards for loads and vehicles. The authors conclude that "reliance on the market as a regulator will be the main American policy toward freight transporta tion in the next century." At a time when free-market thinkers grieve over failed fed eral programs in medical care, Social Secu rity, and welfare it's nice to read a success story-and that's what Teske, Best, and Mintrom have given us. D Dr. Folsom is senior fellow in economic educa tion with the Mackinac Center for Public Policy in Midland, Michigan.

Roads in a Market Economy by Gabriel Roth Ashgate Publishing. 1995 • 272 pages. $76.95 Reviewed by John Semmens N o one has labored longer than Gabriel Roth has in the pursuit of a more efficient transportation system. For over 40 years he has been analyzing problems and suggesting solutions. Most of this work has been in the form of shorter policy studies, 588 THE FREEMAN • AUGUST 1996 conference presentations and papers, and magazine or journal articles. This book endeavors to present a more complete and comprehensive exposition of his views on how roads might be more effectively oper ated for the benefit of both users and the larger society. The current methods of financing and operating roads are less than optimal. While there are "highway user taxes," they are levied in ways that do not take full advan tage of the commercial potential that "pric ing" the roads offers. Highway user taxes do not vary with traffic demand. As a result they cannot serve to ration demand. High way user taxes have an inconsistent rela tionship to the costs incurred to serve var ious users. As a result, users who impose high costs on the system are encouraged to demand more service than can be provided with existing resources. Investment deci sions are similarly diverted from the opti mum because they are not driven by the need to serve customers in order to earn a profit.

Mr. Roth's solution to the deficiencies of the current public highway system is to "commercialize' , the roads. He distin guishes this from "privatization" by allow ing for public as well as private road corpo rations. His model for a commercialized road system is the telephone market. Each road corporation would have a defined ter ritory within which it would operate as a business. As a starting point, he suggests that state highways would be incorporated into a single business within each state. County roads and city roads would also start out as geographically defined monopolies within their respective boundaries. Com pared to a competitive "ideal," these geo graphically circumscribed monopoly busi nesses might be prone to less than full efficientoperating habits. Further, since Mr. Roth's model would permit new entrants to the market, the source of potential compe tition should help reduce monopoly abuses.

However, a more relevant standard of com parison is the current system. On this basis, Mr. Roth's solution would likely be an improvement. Mr. Roth's basic requirements for a com mercialized road system include the follow ing elements: 1. The roads must have owners. As ben eficiaries of the increased value of the asset, the owners will have strong incentives to nurture and improve the roads. This stands in contrast to the current system wherein the roads aren't really owned by anyone. As a result the roads are alternately overbuilt and neglected. 2. The roads must be financially self supporting. The only means we have of knowing whether resources are used wisely is if the customers willinglypay the full cost of their deployment and use. The current mixture of user and non-user taxes and cross subsidies undermines the wise deployment of resources. 3. The law must not discriminate between publicly owned and privately owned roads.

If there are user taxes, privately operated roads must have access to a pro-rated share. In the current system, the users of privat ized toll roads get no return on the gas taxes paid for fuel burned while driving on the toll road. To the contrary, the users of privat ized toll roads are compelled to fund "free" public roads that may unfairly draw custom ers away from the toll road. 4. Revenues must accrue to those who earn them. That is, fees imposed on road users must be paid over to the road owners rather than being diverted to some other purpose (as federal highway user taxes have been diverted to "deficit reduction"). 5. Standards must be established to allow for the free flow of traffic from one road system to the next. The standards estab lished by privately owned and operated railroads that permit the smooth transfer of freight cars from one corporation's. track to another's demonstrate the market's ability to handle this requirement.

Perhaps the key tool for promoting effi ciency in a commercialized road system is the pricing of road access and use. Mr. Roth presents a comprehensive list of require ments that must be met if a road-pricing mechanism is to have an optimal impact on efficiency. Mr. Roth expects commercialization to result in a road system that is more efficient, more equitable, and safer. Given that the marketplace has usually produced better results than government has for all of these objectives, the probabilities are high that Mr. Roth is correct. Even though we might have wished for a more radical solution (I myself have written a number of articles and papers advocating that public roads be sold to private opera tors), those wishing to be fully informed on the evolving issues of highway privatization can ill-afford to be ignorant of Mr. Roth's work. This latest effort is a well argued and nicely detailed addition to his already im pressive output on this issue. D Mr. Semmens is an economist with the Laissez Faire Institute in Chandler, Arizona.

Why Not Freedom! America's Revolt Against Big Government by James Ronald Kennedy and Walter Donald Kennedy Pelican Publishing Company • 1995 • 397 pages • $21.95 Reviewed by Wesley Allen Riddle T he Kennedy brothers of Louisiana have followed up their successful title The South Was Right!, winner of the Southern Heritage Society's 1995 Literary Award, with a new book-even more likely to raise eyebrows and a din of vituperative commen tary from the liberal press. Why Not Free dom! is a clarion call to wage political bat tle' sounded for Southern nationalists and states' rightists of all sections. The visionary aim is to reinstate antebellum constitutional construction, minus slavery or legally en forced segregation and race-based discrim ination. The authors blame both major political parties for betrayal of the American middle class, notwithstanding the fact that they vent hottest anger at the Democratic party which, after all, was the Solid South's po litical home for so long. But while the BOOKS 589 Kennedy brothers apparently agree with conservative Republican positions on most issues, they refuse to take much comfort, and they provide a sobering and decidedly Southern assessment of the so-called' 'Rev olution of 1994."

If there is a problem with the historical case the authors make, it is that they credit the Civil War too much for the kind of consolidation that has taken place this cen tury-really only since the Progressive Era. Indeed, recent historical scholarship by Earl M. Maltz, professor of law at Rutgers Uni versity, indicates that the original intent of the drafters of the Reconstruction amend ments was to keep essential federalism in tact. The Thirteenth, Fourteenth, and Fif teenth Amendments most certainly were not conceived to grant sweeping new authority to the federal government to enforce open ended concepts such as equality. Be that as it may, the Kennedy brothers demonstrate that Americans at the end of the twentieth century live in a country that meets outright the definition of tyranny used by the Founding Fathers. The Constitution no longer operates in accord with the Founders' original intent. Rather, the fed eral government has become Leviathan and views the middle class as a "cash-cow" to be milked-taxed for the benefit of others.

One of the most lucid theoretical points the Kennedys draw from the Founding Fed eralists, including even Hamilton, is the role of the states in vertical balance of power. In particular, the sovereign state bears respon sibility in the federal system to police the actions of its agent, the federal government, to insure that liberty and property of its citizens are not curtailed. The authors provide excellent examples of how citizens do not possess the necessary resources or power to fend off wrongful prosecution by the federal government. The relatively weak individual needs state gov ernment to intercede or interpose on the individual's behalf. Today that function is all but inoperative, and individuals are left to the mercy of big government. Unfortu nately, "Big Governments make for small citizens" (p. 239). In Section 11,20 chapters 590 THE FREEMAN • AUGUST 1996 are dedicated to documenting contemporary abuses of the middle class by the federal government.

Why Not Freedom! is not for the timid conservative. It is radical. This book is one more compelling piece of evidence about the momentary groundswell in Louisiana, as well as in Alabama, Texas, Virginia-and Montana, among other places. The South, along with the West, is leading a revolution ary political movement that seeks to over turn not only the New Deal, but potentially, some precedents that date back to 1861. So far, neither political party seems fully in tune with it. D Wesley Allen Riddle is assistant professor of history at the United States Military Academy, West Point, New York, where he teaches Ad vanced American History and the American Political Tradition. He is also a Salvatori Fellow with the Heritage Foundation for the 1996-97 term. The Political History of Economic Reform in Russia, 1985-1994 by Vladimir Mau Foreword by Robert Skidelsky Center for Research into Communist Economies, New Series 13, London. 1996.

136 pages. $39.00 Reviewed by Yuri N. Maltsev T he economic and political collapse of the Soviet Union was a surprise only to the CIA, Sovietologists, and fellow travel ers of Communism in the West. For people like Dr. Vladimir Mau, who followed the direction of economic and political devel opments in the USSR from inside of the socialist Leviathan, it was obvious that the disaster was coming, and coming soon. Mau's The Political History of Economic Reform in Russia, 1985-1994, stands out as a story of an insider, a testimony of an important witness. Dr. Mau was a part of the team of senior Soviet economists working on the economic reforms of President Gor bachev at the Institute of Economics of the Academy of Science of the USSR. Today he heads the Moscow Institute for the Econ omy in Transition, an influential think-tank among Moscow reformers. Like any "in sider's story," Dr. Mau's book is highly partisan: he takes sides and he is an ardent advocate of economic and political liberty.

Dr. Mau begins his analysis with a short history of previous attempts to reform So viet socialism, in whIch he shows that re forms would only be introduced as a last resort for saving Communism, not abandon ingit (as the Western well-wishers would try to portray it). The social tragedy known as the Bolshe vik Revolution of 1917 was not an isolated event in Russian history, states Dr. Mau. "The state traditionally played a major role in Russian economy.... The huge bureau cratic regulatory state was the direct prede cessor of socialism. "Not without reason," writes Dr. Mau, "were the basic forms of economic centralism, later raised to an ab solute by the Bolsheviks, determined and tested in practice by the pre-revolutionary Russian governments, both Tsarist and Pro visional." Moving forward 60 years, the first sign of the coming Soviet economic collapse at the end of the 1970s and the beginning of the 1980s was an urgency to increase state subsidies to unprofitable enterprises. By the mid-1980s, the deterioration of the Soviet economy reached a critical point. More than 50 percent of state business enterprises were permanently unprofitable and survived due to the huge subsidies, while the agricultural sector required an infusion of more than 100 billion rubles in the years 1986-1988 to support the feudal collective farm system based on state ownership of land and forced labor. Productivity declined and shortages (as well as corresponding rationing of con sumer goods) became widespread.

"Perestroika was the last and most far reaching attempt to reform Soviet-type so cialism while preserving the fundamental features of that society- 'the socialist choice of the people,' as Gorbachev in his time liked to say. At the same time perestroika led to the breakthrough out of socialism and laid the foundations for the post-socialist (post-communist) development of the coun try. " This "breakthrough out of socialism" had nothing to do with ill-devised and never implemented "economic reforms" of Gor bachev's confidants, who could not go be yond Marxist political economy to mention issues of private property and markets. The whole idea of perestroika was to "improve socialism" by certain organizational mea sures. The true reason for the demise of socialism and the Soviet empire as Mau puts it "was the weakening of political control" (p. 46). With perestroika, the ailing regime lost its repressive underpinning and the "socialist economic mechanism," built upon repression, fell like a house ofcards.

The end of 1991 marked the collapse of both-the Soviet economic system and the Soviet Union as a unitary state. There had occurred two radical changes which had long-term and all-embracing economic and political consequences. First, the policy of late-socialist reformism had been replaced with one aimed at solving post-communist transformation problems. Second, the cen ter of gravity of this process had shifted onto the level of the former Soviet republics, which had just become independent states. Reviewing the post-Communist economic transition, Dr. Mau points to the widespread frustration with the "free market" reforms of Yeltsin' s government that led to the situation in which every new announcement of impending reform causes perverse public responses and new legislation passed, os tensibly to increase freedom, but which only increases opportunities for fines and bribes. Today, it is obvious that economic and political developments in Russia are taking the path toward even more government intervention, towards the creation of the essentially fascist economy coupled with a totalitarian political regime. Recent resolu tions of the Duma attacking the West and calling for the restoration of the former Soviet empire illustrate this sad conclusion.

The major lesson to be learned from this examination of the administrative-com mand system is that it failed because of internal contradictions, not human error. BOOKS 591 Subsequent generations, attracted by the appealing but illusory features of the admin istrative-command system-equality, job rights, managed growth-may conclude that the system itself was sound. In this flawed but popular view, Soviet managers from the late 1920s through the early 1990s simply could not do it right due to some technical or cultural factors. Such a conclusion could lead to a repetition of the deadly experiment with results that would perhaps not be foreseen by future generations. The failure of socialism in Russia and enormous suffering and hardship of the people in all of the so-called socialist coun tries warn strongly against socialism, stat ism, and interventionism in the West. Yet OJ1e of the saddest legacies of Marxism is the mindset of certain people both in the East and West who started to believe that only the BigState can cure economic ills and achieve social justice. Dr. Mau's book is another testimony that this path will inevi tably lead the follower down the road to serfdom. D Dr. Maltsev is associate professor of economics at Carthage College in Wisconsin.

The Free Society by Lansing Pollock Westview Press. 1996 • 168 pages. $49.95 cloth. $17.95 paper Reviewed by Robert Batemarco F ailure to go back to first principles in considering what government should do lies at the heart of the sterility of so much of today's public debate on the issues. Lansing Pollock's The Free Society seeks to fill that void by providing philosophical foundations for his version of limited gov ernment libertarianism. His "freedom prin ciple" is based on Kant's exhortation that people be treated as ends in themselves rather than means, as well as a rejection of paternalism. From here, Pollock informs his pragmatic discussion of institutions, 592 THE FREEMAN • AUGUST 1996 their economic ramifications, and how to make the transition from our present state of affairs to the one he envisions. His libertarianism is less limited than many Freeman readers might hope for. For instance, he would have his "libertarian"

government provide water and sewer ser vice, street and roads, parks, and even student loans, in addition to the national defense and law enforcement services pro vided by anyone's minimal state. Even in eliminating such welfare state excrescences as AFDC, public schooling, and Social Se curity, he calls for gradualism, with the phase-out periods ranging from 16 to 25 years. Many of these "leaks," to borrow Leon ard Read's description of divergences from his own freedom philosophy, come from the author's notion of "conservative justice." This notion brands as coercive any action which disappoints expectations which one's previous actions led people to hold. Acting on this notion appears to violate Pollock's own freedom principle, however. Its main effect is to upgrade the case for gradualism in reforming current abuses from the prag matic level to philosophical level. Even on the pragmatic level, gradualism seems to perform far more effectively at expanding the state rather than restraining it.

Many of his themes, however, do indeed strike a libertarian chord: the existence of rational criteria for evaluating moral theo ries, opposition to both bullying elitism and leveling egalitarianism, the inviolability of property rights, the justification for punish ment, the detrimental effect on economic growth and productivity of government in tervention, the tendency of paternalism to foster irresponsibility, support for a non interventionist foreign policy, and the con nection between big government and moral decay. The Free Society's scope is far-reaching. In a book so short, this means that the author barely scratches the surface on some issues. Given that handicap, it is gratifying how many issues he covers well. I thought his discussion of health care was extremely well done. Conspicuous by its absence, however, is any discussion of the monetary institutions necessary to a free society.

One of the thorniest problems facing lib ertarians is how to finance the limited gov ernment they do support, given their view that, "taxation is theft." His inclination toward user fees is reasonable, but inade quate for such collectively consumed goods as national defense. His .proposal to solve this by taxing land harkens back to Henry George and entails, if implicitly, the quite unlibertarian assumption that all land be longs to the state. Despite its shortcomings, this book pre sents a principled case for libertarianism in a clear fashion. While one may not agree with every proposal it puts forth, there is little it advocates which would not be a step in the right direction. D Dr. Batemarco, book review editor of The Free man, is director of analytics at a marketing research firm in New York City and teaches economics at Marymount College in Tarrytown, New York.