Michael Medved and The 5 Big Lies About American Business (part 6)

By Nick Slepko - January 23, 2012 | Tickers: FDX, UPS, DIS | 0 Comments

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[Continued from Lie #4: Big Business is Bad, Small Business is Good.]

Lie #5: Government is More Fair and Reliable Than Business

Companies that refute the Lie: Deutsche Post DHL (FWB: DPW), The Walt Disney Company (NYSE: DIS), FedEx Corporation (NYSE: FDX), United Parcel Service, Inc. (NYSE: UPS), Virgin Group Limited

Movies that challenge the Lie: Pacific Heights (1990), The Trial (1993)

Big Government LOLcat or Big Business LOLcat?

The problem with making a movie that challenges this Lie is that actuarial tables and the plodding morass of the typical federal agency do not lend themselves readily to the medium. It is far easier to build a vehicle around a crusading lawyer representing whatever the cause celeb of the year is, blame a corporation for their ills, and then finish out the formula using variations provided by the voluminous scribblings available at your nearest grocery store check out line.

However, the thriller Pacific Heights uses the absurd laws favoring tenants in San Francisco as an effective plot device (and probably made it impossible for Michael Keaton to ever rent again). The Trial, Franz Kafka’s famous short story about being trapped in a bureaucracy, has also been made several times, most recently with Anthony Hopkins and Kyle MacLachlan.

In the best part of the entire book, Medved examines the stark contrasts between the private- and government-funded Arctic explorations in the early twentieth century. Additionally, daily listeners can hear Medved regularly taking apart one federal cow after another from Medicare/Medicaid to the “famously feckless federal Department of Education.” Though writing in 2009, the numbers and performance for the Post Office, Amtrak, and the Parks Service have continued to deteriorate (even while their private competitors have already recovered from the setbacks dealt them by the financial crisis).

The United States Postal Service struggles for survival while private delivery services manage to adjust to the troubled economy and enjoy booming business. Most recently, the Postal Service faced yearly losses of more than $7 billion and planned painful elimination of some 3,000 local offices and perhaps 10,000 jobs. Rapid, regular increases in postage charges haven’t helped, nor has the emergence of the faster, cheaper, more reliable alternative of e-mail. Nevertheless, Federal Express and United Parcel Service continue to serve eager customers and draw massive revenues. In 2008, the two delivery companies combined for $89.4 billion in business, compared with $74.9 billion for the taxpayer-supported, sclerotic USPS.

As even a casual listener to Medved’s radio show knows (and that his friends will confirm without reservation), the usually even-keeled, open-minded host goes into fits of apoplexy over the light rail craze. Drawing on Prof. Burt Folsom, Jr.’s classic The Myth of the Robber Barons, Medved examines the distinction between modern day “market entrepreneurs” (industrialists that profit through private initiative) and “political entrepreneurs” (robber barons that profit through government intervention). Mostly though, he rails against Amtrak:

…the nationalized rail passenger system (with all its preferred stock now owned by the lucky federal government), remains a singularly stunning example of bureaucratic ineptitude and wastefulness…“Each year since its creation as a passenger railroad owned and operated by the federal government, Amtrak has promised it would break even, with its revenues covering its costs. It never has. Instead the American taxpayers have had to waste at least $25 billion to cover all its deficits…Amtrak accounted for only three tenths of 1 percent of all trips taken in 2000; twice as many people took trips by small private planes. It’s political pressure that keeps money-losing, half-empty trains running 12-hour routes when for not much more money, one could fly between the cities served by those trains in an hour.”…“the average taxpayer subsidy per Amtrak rider is $100 or 40 percent of the total per-passenger cost…the average subsidy to a New York-Los Angeles rider exceeds $1,000. The estimated round trip subsidy per passenger for a Denver-Chicago trip is $650.”…for the cost of the subsidy alone the government could not only buy an airline ticket, but in most cases even provide a first-class ticket…“it’s a myth that Amtrak simply could not survive under private ownership and operation. There is no law of nature or economics that says that trains must lose money. Because of government control, however, Amtrak costs are far higher than necessary. Amtrak provides especially unprofitable services for political reasons, and it is hamstrung by archaic work rule provisions that make it more expensive than other travel options. For example, federal law requires Amtrak to pay up to six years of severance pay to workers who are laid off.”…the public could benefit by privatization of selected routes, with numerous capable companies expressing interest in the heavily used Northeast Corridor service. In the United Kingdom, a similar takeover by Virgin brought ridership to levels unseen since the 1950s.

Medved considers himself a conservationist and is often supportive of groups and initiatives that fund and maintain public parks. Yet:

Even the National Park Service, the public’s sentimental favorite among federal programs, has degenerated into the sort of haphazard and arrogant operation that would never survive in the private sector…[R]ecent reports document trouble in paradise. The most popular parks now suffer from overcrowding, air pollution, and other out-of-place urban ills, while subpar maintenance and pinched budgets leave beloved and sometimes historic facilities looking shabby and run-down….Astonishingly, total visits to the park system peaked in 1987. Since that time, the nation’s population has increased by more than 50 million and the government (with much fanfare) dedicated ten new national parks, but the public’s visits to those natural wonderlands actually declined….As a thought experiment, imagine that a private corporation (rather than a stuffy bureaucracy) had been running the vast system of recreation areas and nature preserves. Is it conceivable that a for-profit enterprise would have blithely allowed its national brand to decay for decades, while its priceless properties remained underutilized and poorly maintained, drawing a steadily smaller share of the vastly expanded market?...[T]here’s no reason that America’s natural wonders (with facilities subsidized by more than $2 billion in annual taxpayer dollars) should receive less respectful treatment from their administrators than the synthetic wonders of the Magic Kingdom receive from theirs, or that Mount Rainier National Park should prove less attentive (and attractive) to its hordes of visitors than, say, Disney’s masterfully presented Animal Kingdom attraction in Orlando.

Often when privatization is brought up, the public is left without concrete, real life examples of how something could be different, could be better. While a charge often leveled against private operators is that they will cost more to the public than if the state (mis)handles their management, this often is not the case. As logistics companies are allowed to deliver a full-range of products without restriction, as Disney expands into emerging markets, and as any city with private transportation service can illustrate, allowing business an opportunity to deliver services has been better for both access and quality.

[Continued in Lie #6: The Entrepreneur is the Hero, the Company Man is the Villain.]

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