What Congress Did For Business

EVER since the New Deal, a common-law marriage has existed between the U.S. Government and private business. Like most such arrangements, the affair has been troubled by tensions and uncertainty. Despite four decades of alliance, the two parties are still wary of each other; at the same time they are becoming increasingly beholden to each other. The Government's money tempts business to ask for more and more aid. Politicians are reluctant to refuse to dole it out because business prosperity is needed to keep voters happy. Last year an otherwise lethargic Congress enacted a surprising amount of legislation that subsidized, succored, or, in some cases, hurt private business. In nearly every case, the free-enterprise system lost a bit more of its freedom or competition.

Going on Welfare. To forestall collapse, two giant corporations went on public welfare. At the Pentagon's urging, Congress last month voted a $200 million "contingency" payment to Lockheed Aircraft to help cover $758 million of unexpected costs in producing the Air Force's C-5A jumbo jet. The $200 million was only the first installment in a financial rescue that could well cost the taxpayers at least three times as much. Without such aid, said Deputy Defense Secretary David Packard, Lockheed faced bankruptcy, and other defense subcontractors could go under in its wake. Last week, however, Lockheed rejected the Pentagon's proffered $558 million settlement as unfair because the company would have to absorb a $200 million loss. Lockheed announced that it will sue for more generous terms.*

For the Penn Central and other bankrupt railroads, Congress authorized $125 million in loan guarantees. That put off for the time being a complete shutdown of the Penn Central, the nation's largest railroad. A major part of the bailout money will go to pay its share of the inflationary 13 1/2% wage increase that Congress ordered for all U.S. railroad workers as part of last month's law prohibiting a rail strike until March 1. Congress and the Administration also created a quasi-governmental body, the National Railroad Passenger Corp., to take over intercity passenger trains, starting May 1. It will relieve private lines of the $200 million annual loss they suffer from passenger service they would prefer not to supply.

Critics of the Government's expanding role in propping up indigent corporations and shaky industries complain that such aid promotes inefficiency by deadening the cost-pruning pressure of competition and, in some cases, by shielding inept management from the consequences of failure. And once federal aid has started, it is difficult to withdraw.

Wall Street turned to Washington for salvation after the wholesale collapse of brokerage firms exposed the mismanagement and undercapitalization of much of the securities trading business. The outcome was emergency legislation, signed into law two weeks ago by President Nixon. The new law set up the Securities Investor Protection Corp., a Government-controlled corporation that will insure investors against losses of up to $50,000 (including a maximum $20,000 in cash) in brokerage-house failures. A $150 million insurance fund will be raised by assessing brokers up to 1% of their annual revenues.

Preference Plans. The Government also moved into crime insurance in response to an outcry from householders and merchants in crime-infested cities. The 1970 Housing Act empowers the Secretary of Housing and Urban Development to start selling burglary, robbery and other forms of theft policies next Aug. 1 in states where private insurance is not available at "affordable rates." Chances are that HUD will operate through existing private companies and brokerages by acting as re-insuror to them. Though high commission rates (average: 15%) paid to agents are one cause of soaring premiums, Congress responded to insurance-industry lobbying by directing HUD to allow agents to collect "reasonable and adequate" commissions.

Since the 1930s, Washington has spent or committed at least $20 billion for a widening array of subsidy programs to make homes and apartments cheaper for one segment or another of the population. One subsidy usually begets a demand for another, and last year Congress concocted a new batch of preference plans for the latest beneficiary: middle-income families. Among other things an $85-million program will soon be put into effect, allowing Federal Home Loan Banks to absorb mortgage interest up to $20 a month for five years for home buyers in the $7,000 to $12,000 a year income bracket. The loans will be dispensed through savings and loan associations. Thanks to the lower payments, many more families should be able to qualify as home buyers. The $85 million, however, will be enough for only 70,000 of the 18 million U.S. families that the Bank Board seeks to aid; such shortfalls are chronic in housing subsidy programs.

Holes in the Ceiling. As usual, Congress did not forget the farmers. The lawmakers approved a three-year price-support law for wool, wheat, feed grains and cotton that will cost taxpayers just about what farm support costs them now --approximately $3.8 billion annually. For the first time Congress placed a limit, $55,000, on the amount of subsidy that a farmer may receive per crop. But that ceiling affects only about 1,100 of the nation's 3,000,000 farmers --among them, Senator James O. Eastland, who collected $146,792 during 1969 for his cotton plantation in Sunflower County, Miss. Still, there are several loopholes in the new rules through which big farmers can escape financial loss. It will, in fact, be difficult to end farm subsidies, not only because of the farm vote, but also because the billions that the U.S. has already spent in such aid have had the unintended side effect of raising the price of farm land. Subsidy-inflated land prices now support local real estate tax structures and the standard of living in much of the farm belt. Sudden change could easily cause economic havoc in whole regions of the U.S.

The U.S. merchant marine and the nation's shipbuilders will also receive a huge new infusion of Government money. The Merchant Marine Act of 1970 provides subsidies to shipyards of some $2.7 billion to cover the extra cost of building 300 ships in domestic yards rather than abroad. In addition, ship operators will get as much as $2 billion over the next decade to cover the wage differentials between American and foreign seamen, plus several billion more for other extra costs. The Merchant Marine program, proposed by President Nixon to fulfill a 1968 campaign pledge and adopted by Congress with hardly a dissenting vote, is a gamble designed to spur American shipbuilders to reduce their outsized costs through mass production. The new era of container vessels, Administration officials believe, has turned shipping into a capital-intensive game in which the U.S. can compete with foreign nations--provided that domestic yards give U.S. operators an efficient fleet at reasonable prices.

While many congressional moves will help specific industries, at least for the short run, other actions will raise costs for nearly all businessmen. One of Nixon's few victories in Congress last year was the law that created a semipublic postal corporation to be called the U.S. Postal Service. The law removes control of the postal system--employment, wages, postal rates and capital expenditures--from the dictates of Congress and transfers the system to a presidentially appointed, nine-man board. Established by the Continental Congress, the Post Office has lost money in all but 17 years of its history. To end its deficits as the new law requires, the Postal Service will have to raise rates as well as modernize creaky facilities. First-class postage is expected to go up from 6-c- to 8-c- per oz. Newspaper and magazine publishers, the principal users of second-class mail, face even greater increases in their postal bills--a prospect that has already impelled some magazines to reduce their page size to cut mailing charges (see THE PRESS). By Post Office computations, second-class mail now pays only 40% of its cost and is the greatest single source of postal losses.

Many of last year's congressional actions were a frank response to the rising demand for consumer and environmental protection. Before 1970 it would have been unthinkable for Congress to adopt such a draconian measure as Senator Edmund Muskie's Clean Air Act. Automakers will be the most severely affected. The law requires a 90% reduction in carbon monoxide and hydrocarbon contamination from engine exhausts by 1975, and the same reduction in nitrogen oxide emissions by 1976. Detroit executives protested in vain that the deadline is too short to allow engineers to solve the technical problems involved.

If fully enforced, the Clean Air Act will also impinge on business planning and even some aspects of everyday life. States will have to approve the location of new factories; freeway construction may be required to give way to expansion of mass transit, and cities may be forced to restrict the downtown use of autos. Compliance will be costly for industry. Warns Muskie: "Many facilities will require major investments in new technology and processes. Some facilities may be closed."

The backbone of the law will be new air-quality standards to be set by the Environmental Protection Agency. It will specify allowable nationwide levels of such major pollutants as soot and sulfur dioxide. Though states will translate the standards into emission tolerances for individual factories, the EPA can take over such policing on 120 days' notice if states fail to follow through. As an alternative, the EPA may sue polluters directly. In a remarkable expansion of the power of ordinary Americans to combat bureaucratic diffidence, the law also authorizes citizen suits against alleged violators or, for lax enforcement, against the EPA itself. Violators are subject to fines of $25,000 a day or two years in jail.

Congressional concern for consumer protection also led to a far-reaching Occupational Health and Safety Act. The law established federal supervision over working conditions, something hitherto left largely to state regulation (except for coal mines). The law aims to reduce the shocking annual toll of on-the-job accidents: 14,500 workers killed and 2,200,000 injured. As organized labor wanted, the act gives the Secretary of Labor the power to fix safety standards for all factories, farms and construction projects involved in interstate commerce. As businessmen urged, the act leaves enforcement to a three-member commission to be named by the President.

Redrawing the Rules. Taken together, last year's congressional actions strengthen the ties that bind Government and business together. With securities insurance added to long-existing mortgage and bank deposit insurance, Washington's total financial liability in a serious economic slump could conceivably reach an astronomical figure. Still, despite its controversial habit of subsidizing transportation, housing, farming and shipping, Congress so far shows little inclination to rescue individual companies except to preserve vital national services. Lawmakers last year made no move to bail out film makers, conglomerates or airlines.

As the many measures for consumer and environmental protection show, Congress is responding to newly perceived flaws in the U.S. economy. Says Harold L. Buma, vice president and economist for San Francisco's Wells Fargo Bank: "Our enterprise system isn't perfect. It doesn't provide equitable salary and wage distribution. In some cases, it doesn't provide the right labeling on packages. There have been defects in autos. These are the kinds of cancers that can really destroy our system. So the Government has to redraw the rules under which enterprise will operate." However painful the adjustments, many businessmen will probably have to accept new and restrictive rules in order to preserve the U.S. business system they cherish. For in the long run, prosperity and domestic tranquillity require economic as well as social justice.

*Congress last year authorized $19.9 billion in new spending for military weapons, down from $20.7 billion the previous year. By Pentagon estimates, defense employment will drop to 2,400,000 by June, down 1,100,000 from 1968.

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