~ $ ~ The Los Angeles Times
March 11, 2001

Peter G. Gosselin

"The '90s: Private Boom Stingy on Public Good"

For nearly a century, every time the American economy boomed, it left an enduring legacy of vast new public works and bold private initiatives that were intended to benefit all. Interstate highways and universal phone service changed how we lived. The moonshot and environmental cleanup helped define who we are. But as the nation comes off the expansion of the 1990s, the longest in its history, it has few similar accomplishments to show for the good times. Americans are twice as likely to own a personal computer as they were when the growth began. But they're also more likely to run short of the power needed to operate it. They can purchase the most technologically advanced health care on Earth but face a rising risk of being unable to find an emergency room or a variety of basic drugs. They can buy Perrier but can't always get clean tap water.
The chief reason: The prosperity of the last decade has been a peculiarly private affair. While affluent Americans spent generously on themselves, the nation as a whole did not. On the contrary, it devoted a historically small fraction of its new economic bounty to the roads and airports, waterworks and sewer plants that have traditionally made up society's foundation. While an increasingly deregulated private sector profited handsomely from the decade's growth, it was also given new responsibilities for such shared services as electrical power and health care. It tackled these tasks with the same spare, profit- driven techniques that it applied to car-making and computers. The result has been a broad deterioration that has left even the rich with their alignments wrecked by potholes, their travel trashed by flight delays and their health threatened by emergency care cutbacks. There has also been a crumbling of Americans' once-easy confidence that here at least the power was reliable, the water clean and the telephone service certain. To be sure, government did not altogether abandon bricks and mortar. In fact, it substantially increased its spending on schools, highways, airports and the like starting in the mid-1990s. And free-market advocates argue that without the private sector's lean and mean approach, there would have been no economic boom, no hiring binge, no productivity gains, no high-tech revolution to benefit the country. But the public's investment, while still rising, never kept pace with the roaring growth of the '90s. Doubts about government's ability to tackle large tasks and a rise in not-in-my-backyard politics blocked many undertakings even when money was available. And the private sector's once-bright promise of a plentiful new supply of commonly shared goods was undercut by outright breakdowns like the California electrical crisis and the slow corrosion of such an essential as basic phone service. The twin shortcomings of business and government are likely to frame much of the political debate of the coming years, with Democrats like Gov. Gray Davis charging that markets have failed while Republicans like President Bush contend that further loosening of government's grip on the private sector is needed to spur growth. The prospect of stalemate seems to daunt even a leading architect of Washington's retreat from its once-dominant role as provider of public essentials. "There's a clear mismatch between what people want in their lives and the collective goods they need to get it," said Newt Gingrich, who represented the Atlanta region and the conservative cause for more than two decades in Congress before quitting as speaker of the House in 1998. "If you ask people what they're looking for," he added, "it's clear a lot of the things require collective assets and common action"--two things that were in short supply during the 1990s and remain so today.

A Study in Contrasts
Across the country, but most strikingly in the booming suburbs of places such as Gingrich's Atlanta, the private tilt of the economy's recent performance shows up in disconcerting combinations of personal opulence and public shortfall. On a recent day, Dr. John Neeld left a meeting at Atlanta's Northside Hospital, where he is chief of anesthesiology, and headed for the buttery leather interior of his black S-Type 4.0 Jaguar sedan. Arriving home, he invited a visitor to admire the dogwoods and azaleas from one of three decks that stretch across the face of his house atop a bluff over the Chattahoochee River in one of the region's most affluent suburbs. At 61, Neeld is at the top of his game, having helped build Northside into one of the wealthiest medical centers in the Southeast. So too is Atlanta, which--as host of the 1996 Olympics and the setting for novelist Tom Wolfe's latest chronicle of affluence, "A Man in Full"--has emerged as a paragon of American prosperity.

But some parts of the picture don't fit.
Neeld's meeting was about a frustrating drug shortage that doctors say threatened surgical patients and expectant mothers across the country. His route home was along Johnson Ferry Road, which, like many in Atlanta, was once a country lane but is now so choked with traffic that rush hour proceeds at a crawl. The river below his house is so polluted in places that the municipal government has had to pay the state up to $2 million a year in fines since the early 1990s. "Atlanta is a city of boosters," said Neeld. "But I have to tell you, the last few years--with the traffic and sprawl and fragmented government--this has gotten to be a harder place to live, even for people who are doing well."

A Broad Breakdown
Historically, most debate over the shortcomings of American prosperity has focused on poor versus rich or black versus white, rather than public versus private. Recently critics have been trotting out figures that show the benefits of the 1990s went inordinately to those at the top. But if the decade did not do as much as it might have for median and minority families, it shortchanged affluent Americans at crucial moments as well, even as it was making them richer. Take airports, which are at least as heavily used by the well-to- do as anyone else. The number of airline passengers in America more than doubled in the last two decades, to 682 million. But the number of new airports of any consequence rose by just two, and the number of runways at major airports climbed by just six, to 122. The upshot: More than one commercial flight in every four was delayed last year, and almost no one expects the record to be much better this year. Indeed, industry executives and government administrators acknowledge that many of the airport "expansion" projects being touted as solutions to the nation's problem will do little more than relieve current congestion, rather than provide what most expect will be needed in the future. That includes the $12-billion overhaul proposed for Los Angeles International Airport. But these officials are reluctant to press for bigger projects out of fear of setting off not-in-my-backyard battles like the one underway in Orange County over the proposed El Toro airport. Opponents have blocked the $2.6-billion project for seven years despite general agreement that something like 80 million more people will be flying in and out of the region annually within the next two decades and that LAX can only handle about one-quarter of that load. "Current plans are not going to get you the kind of growth you need in some of these major urban centers," said Ben DeCosta, general manager of Atlanta's Hartsfield International Airport. DeCosta is overseeing a $5.4-billion expansion project.

Public and Private
Even staunch conservatives concede there are some things that only government can deliver, either by providing the goods and services itself or by requiring the private sector to do so. "Of course, there's a significant role for government in making sure certain goods get provided; no one would argue [with] that," said Gingrich. "The questions," he said, "are how much and in what form?" Gingrich's answers--"Not much" and "As much as possible by private means"--now dominate the political landscape. But they are not the only answers that Americans have accepted in the 20th century. For years, voters believed that government, especially the federal government, had a big role to play in providing certain goods and services. And they backed up that belief with big bucks. >From the Depression of the 1930s through the growth of the 1950s and '60s and well into the '70s, federal, state and local governments combined to devote about 3% of the nation's economic output to non- defense "public investment." That included everything from traffic lights to the interstate highway system. It supplemented the investment with regulations that encouraged or required the private and nonprofit sectors to do even more by providing such things as an extensive system of hospitals and emergency rooms, universal telephone service and a nearly failure- proof supply of electrical power. But matters began to change in the late 1970s and early 1980s. Economists discovered such downsides of regulation as "gold- plating," the tendency of regulated firms to over-invest in plant and equipment because of the certainty that regulators would make sure they made back their money, and Ronald Reagan launched a largely successful frontal attack on the notion of government as a competent provider of almost anything. One result was a torrent of innovation in previously regulated businesses such as telephones. Another was a substantial decline in the fraction of economic output the nation invests in goods that Americans own or use in common. An increasingly deregulated electrical industry began trimming what it spent to ensure adequate surpluses of power. An increasingly profit-driven hospital industry ratcheted back on money-losing emergency rooms and costly intensive-care beds. And government? Despite the long economic boom and the first sustained federal budget surpluses in generations, government began shrinking the fraction of national wealth it devoted to public investment. Government spending on universally shared goods such as roads and schools fell from more than 3% of the economy to about 2% in the 1990s. That was the lowest level of any peacetime boom since the 1920s, and if comparable figures were available, some analysts believe they would show it to have been the lowest in a full century. In current dollars, a 1 percentage point decline in public investment amounts to about $100 billion a year.

The Garbage Factor
Tom Sorensen and his neighbors in the Pine Hills section of Buckhead on Atlanta's plush north side don't care about abstractions like public investment. What they care about is that the manhole covers in their neighborhood keep blowing off, letting raw sewage spew across their lawns. The cause is easy to trace: a tidal wave of upscale shopping malls and fancy condo projects that have surrounded their shaded neighborhood over the last decade or so, adding more waste than the area's once-modern sewer system--and stalemated political system-- can handle. When trouble struck in January, Sorensen happened to be in the driveway videotaping his 7-month-old daughter, Caitlyn. At the sound of a loud noise, he turned his camera to catch hundreds of gallons of sewage erupting from the ground, filling both sides of suburban Crane Road and spilling into nearby Indian Creek. The stuff kept coming for three days. By the time it was over, the flood had destroyed most of the Sorensens' backyard, forcing officials to post signs reading, "The secured area has been contaminated with sewage. DO NOT ENTER." It was one of 1,400 sewer overflows in metropolitan Atlanta during the last 12 months, according to the Georgia Division of Environmental Protection. The city recently banned new sewer hookups in the neighborhood. So did next-door North Fulton County, where growth has so overwhelmed the treatment plants that waste often goes straight into the Chattahoochee, from which the region draws most of its drinking water. But developers are busily trying to get around the prohibitions, which almost no one expects to hold. "I thought we were going to raise our family here, but it isn't going to happen," said Sorensen. He said that he and a neighbor are putting their houses up for sale and moving.

Nowhere to Hide
The Sorensens may have a tough time finding a safe haven from trouble. Americans almost everywhere are struggling with public facilities that are overwhelmed by growth, age or neglect. In Detroit, drivers on the Lodge Freeway, one of the city's major arteries, were terrified a couple of years ago when it appeared that teenagers were dropping cinder blocks from the overpasses, smashing windshields and causing pileups. It turned out that the overpasses themselves were dropping the concrete as the structures crumbled. Now the city is nearly gridlocked as highway crews try to repair or rip down the damaged bridges all at the same time. "We let it go so long, we have to do all the work at once," said Mayor Dennis W. Archer. Cleveland greeted the new millennium with a water-main break under East 9th Street that wiped out water service to many of the region's 1.2 million residents and closed downtown and many of the city's schools for up to a week. Another similar-sized main burst three months ago. "We're averaging one of these bellywashers a year," said Cleveland water Commissioner Julius Ciaccia. In Nevada, more than half of public school students are housed in portable classrooms. In California, schools have only been able to afford one computer for every seven students, the lowest percentage in the nation and a particularly surprising record given the state's reputation as the capital of high-tech. And then there's the electricity crisis, which is no longer confined to California. Residents of Washington's tony Georgetown neighborhood, for example, faced their own flying manhole covers in June when aging wires set off the latest in a series of underground fires that dislodged the covers and knocked out electrical service for two steamy days. The local power company has one of the lowest capital investment rates of any utility in the country. "It never ceases to amaze me how people complain about the undue burden of the public sector until forced to face reality by physical discomfort, inadequate income, bad health care or, if in California, stalled elevators," said John Kenneth Galbraith. The octogenarian Harvard economist was one of the first to note America's enduring reluctance to spend on things that are owned and used in common.

Still Falling Behind
In fact, the public sector is spending billions of dollars for new roads, bridges, schools and the like. And it has boosted its spending substantially over the last five years. The problem is that the amounts almost never keep pace with growth and are nowhere near what the agencies responsible for the spending say is needed. For example, recent legislation provides the Federal Aviation Administration with $10 billion over three years for airport projects. But one recent FAA study concluded that what is needed is closer to $35 billion, and another due out later this year is expected to raise the ante to $50 billion or more. Industry estimates are even higher. In another example, Bush recently proposed to spend $2.1 billion on water and sewer projects next year. But that's barely enough to fix Atlanta's problems. The Environmental Protection Agency, which would get the new money, says that what the nation really needs to spend on water and sewer projects is between $20 billion and $30 billion a year in each of the next 20 years. "Eventually we're going to need more resources," said EPA administrator Christie Whitman. In fact, as Democratic opponents of the president like to point out, recent government studies of just three types of public facilities--airports, water and sewer projects and highways--produce a 20-year tally of brick-and-mortar needs that is nearly twice the $1.35-trillion price tag of Bush's recently enacted tax cut. Add schools, and the figure heads toward three times the tax cut total. And the mismatch of needs and resources in the public sector is the least of the problem. As the California crisis demonstrates, private sector developments can often be even more important in determining whether America gets the goods and services that it depends on. Some recent trends here are not reassuring.

A System Breakdown
The drug shortage that Atlanta's Neeld faced earlier this year started as nothing more than the failure of a local distributor to stock enough of the painkiller Fentanyl. Before it was over, it had turned into a nationwide shortfall that put patients at risk. And it exposed changes in the pharmaceutical industry that could threaten something crucial to both the medical profession and society--a stable supply of basic drugs. "We were left without the narcotic we anesthesiologists depend on to get most surgery patients through their procedures and expectant mothers through their deliveries," lamented Neeld. "It's the one we were trained on when we were residents, and the one we're most familiar with." Some details of the Fentanyl case remain in dispute, but the outlines are clear: Supplies dwindled after a unit of pharmaceutical giant American Home Products Corp. stopped producing the drug rather than make expensive changes in its manufacturing process ordered by the Food and Drug Administration. Although the company eventually resumed production, it did so only after pressure from medical groups. And in what industry analysts take as a sign that it will eventually drop the drug, the firm stopped making it in its most popular form. Fentanyl is no longer protected by patent and is therefore less profitable than newer compounds. Observers say the most disturbing aspect of the case is that it suggests the nation may be less and less able to depend on the pharmaceutical industry for adequate supplies of many widely used drugs. And for a paradoxical reason: its success at revving up economic competition through deregulation. Even 20 years ago, pharmaceuticals were a stodgy business. Leading firms produced a broad line of products, including many made by competitors, and almost never dropped a drug from their lineups. The results were similar to those in other heavily regulated industries such as electrical utilities and telephones--prices that were higher than they might otherwise be, but also a near fail-proof surplus of product. But with the advent of competition, drug companies increasingly favor patented blockbusters over a full line of more routine products. They are much quicker to drop a drug if costs rise, as they presumably did in the Fentanyl case. And they are willing to run with much leaner reserves of drugs. The consequences are starting to worry even some of those who helped unleash the economy from its constraints. "There is no doubt about it, we have knocked the safety padding out of a lot of the social goods we depend on," said Alfred E. Kahn, the Cornell economist who's widely considered the father of deregulation for helping lift government controls of the airline industry in the late 1970s. In the case of Fentanyl, the padding was all but gone before Neeld even knew he had a problem. That's because no one told physicians that American Home Products was suspending production of the drug. Companies are only rarely required to announce manufacturing halts. When the Atlanta doctor and his staff finally realized what was going on, they reserved what small supplies they had left for pregnant women, and switched to harder-to-control drugs for other patients. That drove up the number of cases in which patients stopped breathing and had to be resuscitated. "We should have been told what was going on. We could have prepared," Neeld complained. He and members of the American Society of Anesthesiologists are seeking federal intervention to make sure they get advance notice of drug production halts in the future.

High-Tech Promise
If drug shortages and rolling blackouts testify to the missteps of the 1990s, the decade's private prosperity posted one accomplishment that seemed--until recently--to demonstrate competition's unalloyed benefit to society: the information and telecommunications revolution. Over the last two decades, but especially in the 1990s, Americans and their employers went from having nothing better than the plain black telephone and basic broadcast TV to a wild array of wireless devices, souped-up computers and big-screen video systems. And the telecommunications industry cooperated by spending hundreds of billions of dollars laying a fiber-optic network to link these new instruments and provide Americans with the torrent of movies, cable programs and Internet links it is presumed they want and need in order to be more productive. The new technology was given much of the credit for the decade's low-inflation growth. And the fiber-optic network especially became a symbol of the late 1990s and, in the eyes of free-market advocates, a sign that the private sector had finally come of age. "There was a lot of naive talk about how the market can make it on its own, and how government has become superfluous," said Anthony G. Wilhelm, a communications policy specialist at the Benton Foundation, a public policy advocacy group in Washington. Although the recent stock market tumble, dot-com crash and economic slowdown have put a damper on such talk for the moment, influential figures such as Federal Reserve Chairman Alan Greenspan have continued to predict that once growth resumes, so will the society-improving technology revolution. But a variety of experts say there are some important reasons to doubt the revolution will deliver on its broadest promises any time soon. "We still don't have the market conditions to assure these new services reach everyone and fulfill their potential," said former Federal Communications Commission Chairman William E. Kennard.

Among the problems:
* The changeover to the new technology is nowhere near as far along as the hype would lead one to believe. Census figures indicate that average Americans spent only 122 hours online last year--about 3.5% of the time they devoted to "media," including radio, TV and newspapers. That helps explain why a recent Merrill Lynch study found a mere 3% of the nation's new fiber-optic network is "lit" and operating. * The latest technology of high-speed computer links and multi- hundred-channel cable connections has generally only been adopted by the richest businesses and most affluent households, a concentration that some fear is creating a "digital divide" between rich and poor, urban and rural. Free-market advocates like the FCC's current chairman, Michael K. Powell, say that whatever problem exists will solve itself as more people buy services. Powell has ridiculed the notion of a digital divide. "I think there is a Mercedes divide," he quipped earlier this year. "I'd like to have one; I can't afford one." But Kennard and others argue that the market alone won't solve the problem and that the government must step in, as it did in the early days of telephone and electrical service, to make sure the Internet is universally available. "In America today, people's potential is defined by their access to technology," said Powell's predecessor, Kennard. "The analogy is not between having a Mercedes or a Toyota. It's between having a car or not having a car." * There is some evidence that the telecommunications revolution is coming at a cost to the one thing that remains universally available to everyone--plain old telephone service. Critics charge that phone companies are skimping on routine services like directory assistance and installation and repair, in their rush to enter newfangled businesses like high-speed Internet. Indeed, installation and repair times have ballooned to such an extent that Illinois recently passed a law requiring that Ameritech, the state's dominant phone company, give free cell phones to customers who face service delays. Florida is about to require BellSouth to make penalty payments to customers for poor service, and Georgia is studying a similar move. "Things are going the wrong way right now, and we've got to stop it," said Leon E. Bowles, telecommunications director for the Georgia Public Service Commission.

All the Right Moves
John Neeld has ridden the recent wave of prosperity about as successfully as anybody could. In doing so, he has made himself a modern version of that American classic, the self-made man. But even Neeld is starting to wonder about the limits of his accomplishments. Unlike Charlie Croker, Tom Wolfe's fictional real estate tycoon who loses his fortune when he builds his last project so far from downtown Atlanta that he can't attract tenants, Neeld went just far enough out and let the growth come to him. In the early 1970s he turned down a prestigious faculty appointment at downtown Emory University for a spot on the medical staff of tiny Northside Hospital in distant Sandy Spring. First as anesthesia chief and later as the hospital's board chairman, he helped build Northside from 150 beds into an empire that now includes two hospitals, an ambulatory clinic, four medical office buildings and, if all goes as planned, an 850,000-square-foot hotel-office complex. It is quite a record for the son of a postal clerk from Tennessee, and one that gave Neeld some very definite views about how to survive and succeed in America. "I figured I worked hard, I made it; if you work hard, you can make it." But as he crawls home through Atlanta traffic today, navigates the politics of local health care and municipal services and argues for protection against drug cutoffs, the doctor concedes that both the times and his views are changing. "I realize people can't drive on their own roads," he said. "Or fly into their own airports. Or get whisked away to their own private hospitals. They have to depend on these kinds of things being publicly available." Some of those things, like roads and bridges, can only be provided by government. Some, like power and phones, are probably best delivered by business. And in the case of some, perhaps health care, said Neeld, "We're just going to have to get together and make sure they're there when we need them." -------------------------------------------------------
~ Talking It Over & Thinking It Through ~
* React to (agree, disagree, explain....) the following statements by the author:

1) "The prosperity of the last decade has been a peculiarly private affair. While affluent Americans spent generously on themselves, the nation as a whole did not. On the contrary, it devoted a historically small fraction of its new economic bounty to the roads and airports, waterworks and sewer plants that have traditionally made up society's foundation."

2) "Across the country, but most strikingly in the booming suburbs of places such as Gingrich's Atlanta, the private tilt of the economy's recent performance shows up in disconcerting combinations of personal opulence and public shortfall."

3) "Atlanta is a city of boosters," said Neeld. "But I have to tell you, the last few years--with the traffic and sprawl and fragmented government--this has gotten to be a harder place to live, even for people who are doing well."

4) "But matters began to change in the late 1970s and early 1980s. ..... Ronald Reagan launched a largely successful frontal attack on the notion of government as a competent provider of almost anything."

5) "Despite the long economic boom and the first sustained federal budget surpluses in generations, government began shrinking the fraction of national wealth it devoted to public investment. Government spending on universally shared goods such as roads and schools fell from more than 3% of the economy to about 2% in the 1990s."

6) "It is quite a record for the son of a postal clerk from Tennessee, and one that gave Neeld some very definite views about how to survive and succeed in America. "I figured I worked hard, I made it; if you work hard, you can make it." But as he crawls home through Atlanta traffic today, navigates the politics of local health care and municipal services and argues for protection against drug cutoffs, the doctor concedes that both the times and his views are changing." ~ $ ~