Business of America
Reinken, Paul E.
The Business of America - Let Us Now Praise Natural Monopoly MONOPOLY in a free enterprise system? As a toiler in Ma Bell's vineyards, I came to understand this anomaly a...
...Experience to date shows that this is not real competition, but an arbitrary allocation of the market—contrived competition...
...SALT I also provided for 950 submarine-launched missiles for the Soviets and 710 for the Americans...
...Or preservation of the common carrier principle which has benefited all, regulated monopolies with clear accountability for end-to-end service, and the goal of universal service achieved through sound pricing policies...
...efficiency, and good service, to a mixture of regulation and pseudocompetition...
...Opportunities for pushing ahead with -revitalization of the nation's armed forces are excellent in the months ahead...
...Instead, competing phone companies sprang up all over the country, with resultant chaos...
...The United States had 600 heavy bombers compared with 150 bombers in the Soviet air fleet...
...Metcalf, chairman of Strategic Review, has correctly described the Schlesinger missile policy as one of the first sure steps "in the direction of national 14 The Alternative: An American Spectator December 1974...
...We believe this system would be unworkable and cause serious service deterioration...
...The process has worked well...
...It also said that new, specialized common carriers can build intercity private lines systems parallel to the established facilities of the telephone companies...
...Let us hope that President Ford will not back away from this ringing endorsement of a strong national defense...
...Retargeting American missiles would impose a new restraint on Soviet leaders tempted to order a powerful first punch...
...And now the FCC wants to throw the interconnection door wide open through a system of certifying equipment for connection to the network without protective devices...
...If the telephone companies lose through pseudocompetition the revenue dollars from equipment, long-distance calling, and so forth, basic local service rates might have to double, not even accounting for inflation...
...No mention was made of the service impact.' One can only hope the hearings will be held soon and conducted expeditiously, while there is still time to protect the public's interest in this matter...
...Unfortunately, we in the United States did not adopt the wisdom of Hale and Mill in the early days of the telephone industry...
...Studies on the limited amount of customer-provided equipment now connected to the Indiana telephone network show customer trouble report rates twice as high as those where Bell-provided equipment is used...
...The concept that proposes monopoly for certain types of industries is not of recent vintage...
...The Business of America by Paul E. Reinken Let Us Now Praise Natural Monopoly MONOPOLY in a free enterprise system...
...Wasteful duplication of plant facilities existed, price wars caused bankruptcy, and the public frequently had to subscribe to the service of two or even three companies in order to talk to all other telephone customers...
...Instead, the Soviets have pushed new weapons development and deployment on a wide front...
...Arthur G.B...
...Amazingly, after all our progress, some regulators now seem bent on ignoring the lesson of history and reversing its course...
...The change in targeting," he explained, "simply means that we organize ourselves to develop the doctrine and plansby which we can introduce selectivity and flexibility in the types of targets struck in something short of an all-out war...
...Weakness invites war, as my generation knows from four bitter experiences...
...Secretaries of Defense come and go, but the uniformed professionals embody the experience of the services in combat...
...Our new competitors want no real competition...
...In the last few years the FCC has embarked on a program of competition for competition's sake, with no thorough examination yet as to whether such an undertaking is in the public interest...
...As a result the question has become timely and pertinent to a new generation of business watchers, consumerists, regulators, and entrepreneurs...
...If a toaster or television set fails to operate properly, only the user is affected...
...One matter that does give concern to observers of the defense establishment, however, is Schlesinger's reported interference in the selection process for three-star and four-star generals and flag officers...
...Many experts share our concern over the chain of events which has led the telephone industry from the competitive free-for-all of the early days, through a half century of technological progress...
...Last April, long after its landmark decisions on competition, and following some urging bymembers of Congress, the Commission agreed to hold an inquiry into the vital question of the economic impact of competition on consumers...
...This may benefit a few people—some large users, manufacturers and importers of equipment, and the new carriers—but it will be the average telephone user who will pay for these experiments in competition by receiving costlier and poorer service...
...In any case, such interference is unwise and hurtful...
...Certainly, President Ford's emphasis on the need for American military strength "second to none" is a world away from Dr...
...We possessed overwhelming missile superiority at the time of the 1962 Cuban missile crisis, for example...
...We should match the Soviet counterforce capability," he said, urging the development of more accurate and powerful missiles...
...The new senior uniformed military professionals are optimistic about America's military resources and capabilities, whereas at least one of the outgoing service commanders, Adm...
...And because the quality of our service is being undermined by fragmenting our responsibility for the proper installation, operation, maintenance, and repair of telephone equipment...
...This, in brief, is why Schlesinger is so intent upon creating a force capable of striking Soviet missile forces...
...He went on to stress that "We cannot rely on the forebearance of others to protect this nation...
...The Schlesinger plan does not envision an all-out first-strike capability for the United States but a hedge against growing Soviet missile power...
...Given full information and the opportunity to decide, the public is best able to judge what's in its own best interest...
...This is a threat to military professionalism and may be a violation of the National Security Act...
...It dates back three hundred years in England to the time when Lord Chief Justice Matthew Hale observed there were such things as "natural monopolies" as distinguished from other enterprises: businesses "affected with a public interest" (we have since come to call them public utilities...
...At long last, newly-created state regulatory commissions saw the light and began to regulate rates and quality of service, and the concept of franchising one company to serve a specific geographic area gradually gained acceptance...
...Put simply, what Schlesinger recommended is that the United States be in a position to hit Soviet missile forces, if the need arises...
...Moreover, he has a unique background for his position as a civilian head of the defense establishment, having served as a professional weapons analyst, assistant director of the Office of Management and Budget, chairman of the Atomic Energy Commission, and director of the Central Intelligence Agency...
...Costly, inefficient duplication of facilities is avoided...
...Because the loss in these revenues will have to be made up by higher charges to the average telephone customer, and our reasonable price for basic service, which has enabled 93 percent of all households to have telephones, will become less reasonable...
...But even this obvious truth is challenged by those who would tear down the existing system for reasons which have not been shown to be in the public interest...
...A study group of the National Association of Regulatory Utility Commissioners, the organization that represents the regulatory agencies of the fifty states, investigated the FCC policies earlier this year and said in part: "The American consumer is going to have to pay more money to keep a telephone in his home because the FCC has put into practice two new policies (interconnection and specialized common carrier) that alter the traditional way of regulating telephone companies so that business users can have cheaper service and reap greater profits...
...But the Commission is seeking to promote competition in the equipment market and in the provision of private line service to business customers who want leased lines instead of or in addition to regular telephone service...
...The power and diversity of the armed forces, the resolve of our fellow citizens, the flexibility in our command to navigate international waters that remain troubled—all are essential to our security...
...There has been a complete changeabout...
...Thus far only one quasi-governmental body has dealt with the problem...
...In that year, the United States had four intercontinental ballistic missiles for every Soviet ICBM...
...Some industries, utilitieschiefly, operate more efficiently and economically as regulated monopolies...
...Regulation developed as a substitute for competition, designed to prevent the abuses which monopoly might create...
...The new cold-launch "pop-up" technique will enable the USSR to replace their single-warhead SS-11 missiles with four to six MIRV-warhead SSX-19s, within the silo limits of SALT I. By this and other developments, the USSR is gaining a significant new military capability and wiping out the qualitative advantage proponents of SALT I thought the United States would enjoy through the 1970s...
...Untainted by Watergate and not a part of the highly politicized detente operations of the Nixon Administration, Schlesinger is well-positioned to play a strong role in the Ford Administration...
...Let the public decide...
...Anthony Harrigan Schlesinger for the Defense IN HIS FIRST major address to the Congress, President Gerald Ford placed a very important and necessary emphasis on the need for United States military superiority...
...But we want to view them prudently...
...Why...
...So long ago, in fact, that the question would appear anachronistic were it not for recent bureaucratic efforts to turn back the clock and reintroduce competition in the communications business...
...This is the crux of the matter...
...He has pointed out to Congress that Soviet military spending has risen by at least 15 percent in real terms over the last few years, while since 1968 American military spending has decreased in real terms by about a third...
...Any departure from The Alternative: An American Spectator December 1974 13 that philosophy—so important to the public interest—should be the result of a national dialogue in depth...
...All this is in refreshing contrast to the presidential messages during the final phase of the Nixon era, when the nation's Commander in Chief repeatedly insisted that a new era of peace had begun—an insistence that rang hollow in view of the massive Soviet arms buildup and the proliferation of conflicts throughout the world...
...Henry Kissinger's comment at a White House congressional briefing on June 15, 1972: "An attempt to gain a unilateral advantage in the strategic field must be self-defeating...
...The likelihood that he will not is enhanced by his retention of Secretary of Defense James R. Schlesinger...
...He recently described the Soviet missile buildup as being "staggering in size and depth...
...It demonstrated that competition—even though still the cornerstone of our economic system—is not always in the public interest...
...The argument for "natural monopolies" is being seriously assaulted, potentially to the public harm, and those of us in the trade who know something about the matter must again state the justifications for it...
...They want the right to skim off the dollars in high-profit communications items, but with FCC protection against Bell's counter-competition...
...In an article in Public Utilities Fortnightly, Edward P. Larkin, a member of the New York Public Service Commission, said in part: "The present regulation of communications in this country was founded on a monopolist philosophy for the sake of economic efficiency...
...During the Johnson and Nixon Administrations, America's strategic power declined alarmingly...
...The FCC has ruled that customers can provide their own equipment—switchboards, push button switching systems and the like—for attachment (with a telephone-companysupplied interface or protective device) to the nationwide telephone network...
...If a telephone for whatever reason—improper installation, maintenance, or repair—fails to operate properly, it can affect the service of others...
...Since he was sworn in as Secretary of Defense on July 2, 1973, Schlesinger has worked hard to arrest the deterioration in America's military position and to develop a new strategic doctrine in accord with the realities of the mid-1970s...
...We want to avoid undue alarm about these developments," he told the Senate Armed Services Committee...
...As a toiler in Ma Bell's vineyards, I came to understand this anomaly a good many years ago...
...A strong defense is the surest way to peace," the President told the nation...
...not whimsical bureaucratic tinkering that would promote profits for a chosen few...
...Just as America's will for peace is second to none, so will America's strength be second to none...
...Last February, he announced that American plans now involve aiming some long-range missiles at Soviet military targets and not just at cities...
...Elmo R. Zumwalt Jr., took an extremely pessimistic view of U.S...
...Indeed the United States must push for new missile weapons advances, including a missile warhead that can be maneuvered in flight...
...Which course is really in the public interest...
...This meant double or triple telephone bills...
...Along with the adverse economic consequences of contrived competition, to the rate-payer, we at Bell are equally concerned about the long-run threat of poorer service for our customers, if the telephone companies lose "end-to-end" responsibility and accountability for service quality...
...American forces also had twice as many submarine-borne missiles...
...Early in the reign of Queen Victoria, in 1848, English economist John Stuart Mill had this to say about the large number of competing gas and water companies in London: "It is obvious . . how great an economy would be obtained if London were supplied by a single gas and water company instead of the existing plurality...
...Schlesingerrecently swore in a new chairman and three new members of the Joint Chiefs of Staff...
...Service was poor and charges were high...
...In speeches and testimony before Congress, Schlesinger has stressed the increases in Soviet missile forces, ground combat units, and naval formations...
...capabilities...
...Schlesinger's prudent response to the growing Soviet missile threat (an estimated 7,000 MIRV warheads on Soviet missiles by the early 1980s as against a projected 1,650 for the United States) has been to devise a new missile-targeting strategy...
...It can distort transmission, cause cross-talk (where you hear the conversation of others), and result in wrong numbers and inaccurate bills...
...Fortunately, Schlesinger understands the dimensions of the military threat facing the United States...
...The public gets better service at lower prices...
...The five-year freeze was supposed to persuade the Soviets to halt their missile buildup...
...They have to make the decisions as to which officers are best qualified for high command...
...Bell System studies confirm this forecast...
...That is not a happy prospect for the nation's sixty-five million households with telephone service, particularly the low-income families and those living on fixed incomes...
...Since 1934, the Federal Communications Commission has regulated interstate communications in much the same way...
...Most troublesome is the fact that to date the FCC has not held hearings or made studies on the consequences of its actions on the average telephone customer...
...In years past, the United States had no need for such a counterforce capability...
...Unlike electrical appliances, which simply draw off energy, a telephone puts signals into a complex and delicately balanced network capable of some seven quadrillion possible combinations of telephone connections...
...And in the SALT I agreement, Secretary of State Kissinger accepted Soviet military superiority—in an agreement giving the Soviets 1,618 ICBMs to 1,054 for the United States...
...Competition which benefits a few...
...He combines this understanding with a determination to find new ways to augment American military power...
...In communications, if nowhere else, regulation has been dramatically successful—a marriage between free enterprise and governmental surveillance thathas given birth to the best telephone system in the world...
...To be sure, nobody is trying to compete with the seventeen-hundred-odd telephone companies in the provision of basic telephone service...
Vol. 8 • December 1974 • No. 3
