BUSINESS REGULATION

It's Confused & Stagnant

THE furor attending the resignation of Richard A. Mack from the Federal Communications Commission (see NATIONAL AFFAIRS) has obscured an even more serious situation. Entirely apart from skulduggery and influence-peddling, the critical fact is that the federal regulatory agencies, which make decisions vitally affecting both industry and the public, are not doing the job they are supposed to do in the way it should be done. They operate at a snail's pace in a jet age, bog down helplessly in incredibly lengthy and complicated procedures that entail enormous delays and staggering expense to all involved. Items:

P: The Federal Trade Commission has been battling with the makers of Carter's Little Liver Pills for 15 years without a definite decision on FTC charges of false claims. It has been forced to hold 149 hearings, run up a transcript of 11,000 pages and 1,000 medical exhibits--at a cost of $1,000,000 to the taxpayers.

P: The Civil Aeronautics Board has been involved for more than a year in investigating a general passenger fare increase for domestic airlines. Even though the CAB knows that carriers must have an increase and has granted a 6.6% temporary boost, the hearings may go on for another year, at least, before a decision.

P: The Federal Power Commission has been considering for two years an application by the Midwestern-Tennessee Gas Transmission Co. to build a natural-gas pipeline from Tennessee to the Canadian border, has gone through 789 exhibits and 21,091 pages of testimony, at a cost of $1,500,000 to the Government and companies without reaching a decision. P:| The Federal Communications Com mission has been listening to the arguments of seven applicants for a Toledo TV channel since 1952, with no end in sight. Says an FCC official: "We'd do just as well to draw a name from a hat."

One big cause of the paralyzing slowness of decisions is the fact that the agencies are two-headed, quasi-judicial bodies, thus are not only involved in fact-finding but must also judge the facts they find. The paradox was pointed up last month at congressional hearings by FCC Chairman John Doerfer, who remarked that as an administrator he should be out talking to people, but as a judge he should not. Under the fact-finding process, every citizen has the right to be heard before the agencies--and thousands use it. Lawyers have made an art of dragging out a case (at fees up to $500 a day) to their clients' advantage. Nonscheduled North American Airlines was able to hang on for two years, at a profit of $8,000,000 a year, after the CAB ordered it grounded because it was actually providing scheduled service.

Commissioners themselves do not sit in on all cases, depend on examiners to brief them and justify their decisions. Many commission officials have little knowledge of how to conduct a hearing on industry's problems. At a recent CAB hearing, American Airlines President C. R. Smith snapped at a CAB counsel: "I don't know what you're talking about, and neither do you." When the record has accumulated, often to a height of five or six feet, the commissioners do not have time to read all or even most of it. Lawyers often take advantage of the commissioners' presence to draw out the hearings even further by making grandstand plays. Says one lawyer: "We have to impress them with the shock treatment. Our thoughtful arguments are not going to get detailed consideration anyway."

Commission decisions often bear little relation to the facts uncovered in months or years of hearings. After three years in preparation and hundreds of thousands of dollars in expense, the CAB examiner in 1956 recommended Delta Air Lines for a New York-Florida run, specifically disqualified Northeast Airlines. CAB commissioners picked Northeast. Reason: Administration policy was to get domestic carriers off subsidy, and Northeast was getting $1,800,000 a year in subsidy.

The commissions are further slowed by the necessity of taking into account all kinds of legitimate influences: Congress, which controls their purse strings, the White House, which can overrule them (in the case of the CAB), or the courts, where all decisions can be appealed. While a strong commissioner could ignore most of these influences and make his own decisions, it rarely happens in practice. The FCC has declined for seven years to make a decision on pay TV because Congress has frowned on it. FPC let gas companies put increases into effect while waiting for an FPC decision; a court recently upset the practice when the city of Memphis complained (TIME, Dec. 23). Until the Supreme Court rules on the matter--perhaps in a year or so--much expansion in the gas industry has been shelved.

The regulatory agencies are swamped with work, partly because most of them were set up without anticipating later business changes that have greatly increased their scope. The FCC was set up to police radio, telephone and telegraph, but in the last six years has had to pass also on 400 TV permits without a commensurate increase in staff. Despite the tremendous growth in stock issues, the

Securities and Exchange Commission staff actually is smaller now than in 1951. Progress has made some agencies obsolete. The Interstate Commerce Commission, established to protect the public from railroad monopoly, has been outmoded by the growth of competing trucks, buses and airlines. Its tight control of railroad routes and rates, which of.ten keep the railroads from cutting to compete, has a strangling effect. Many transportation experts feel that the ICC should be abolished. -

Some of the agencies have proved on occasion that they can overcome, or at least cut down, the lengthy and costly red tape that makes a nightmare out of the simplest issue. The FTC was a slow-moving bureaucracy when former Chairman Edward Howrey took over in 1953. He eliminated or bypassed many petty details of bureaucracy, cut the average time for processing an antimonopoly case from 65 months to 22 months today. Under present Chairman John Gwynne, only one in five FTC cases goes through the full and costly process; the others are settled by consent agreements.

Lawyers and airline experts think the CAB--and, for that matter, all agencies --should confine their hearings wholly to development of facts, call on contesting lawyers only when the facts are in doubt. Says one lawyer: "This would cut down the time of airline hearings from three months to three days." Both the Hoover Commission and the American Bar Association want more drastic changes; they recommend transfer of the agencies' judicial functions to the courts. This would free the agencies to investigate and make decisions, leave the courts to enforce their decisions with injunctions or penalties.

While there are differing points of view about what should be done, the critical, basic need is clear: the federal regulatory agencies badly need a streamlining.

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