Trends
OPENING UP THE PROFESSIONS
Laws and regulations created at the behest of professional associations to restrict entry, fix prices, and prohibit advertising are coming under fire at both the state and Federal level. Leading the attack are the U.S. Justice Dept. and the Federal Trade Commission (FTC). The initial victory occurred in 1972 when organizations representing accountants, architects, civil engineers, and mechanical engineers all agreed to drop antibidding restrictions, under prodding from the Justice Dept. Today the emphasis is on licensing practices and advertising.
In addition to recent actions aimed at bans on lawyer advertising, activity is occurring in the following professions:
• Physicians—Last September the Justice Dept. charged that the "relative value guides" for pricing used by the American Society of Anesthesiologists violate the Sherman Act. The FTC is planning antitrust action against the American Medical Association and state licensing boards over their refusal to let doctors take license exams unless they attended AMA-approved schools. And in December the FTC made a formal complaint charging the AMA with illegally restraining competition by prohibiting its 170,000 members from advertising services and prices. The FTC's Bureau of Competition emphasizes that the move is not aimed at requiring doctors to advertise, but merely allowing them to do so if they wish.
• Pharmacists—In November the Justice Dept. filed a civil antitrust suit against the American Pharmaceutical Association and the Michigan State Pharmaceutical Association, charging that they illegally conspired to prohibit their members from advertising prices. The suit contends that purchasers thereby "have been deprived of the benefits of free and open competition in the advertising and sale of prescription drugs." California's ban on drug price advertising has already been ruled illegal, but that ruling is currently on appeal to the U.S. Supreme Court.
• Opticians—In December the FTC proposed a trade regulation that would abolish all state laws or regulations which restrict advertising the price of prescription eyeglasses and optometric services. The FTC proposal stated that there is evidence that present bans (in all but 14 states) result in higher prices and hinder consumers in making rational purchase decisions. In California the state's ban on such advertising—under attack by the Opti-Cal chain (see "Trends," January 1975)—was recently declared to be a violation of the First Amendment's guarantee of freedom of expression. The U.S. Circuit Court ruling reversed a November Superior Court ruling upholding the law.
• Engineers—In Ohio a case is pending against the State Board of Registration for Professional Engineers, challenging the board's authority to bar competitive bidding. And the FTC is reviewing civil engineering codes of ethics that restrict the hiring of a competitor's personnel and prohibit comment on a competitor's competence.
At the state level, too, there are organized campaigns, with backing from regional FTC and Justice Dept. offices. In Wisconsin, for example, there is a major coordinated effort to eliminate old examining boards, prevent the creation of new ones, and limit the powers of those that remain. Wisconsin Attorney General Bronson C. LaFollette says his department is pushing for deregulation of the state's commerce "to the fullest extent." All 20 of the state's licensing boards are coming under scrutiny, for their limits on entry and bans on advertising, in particular.
In Vermont the legislative-executive Committee on Administrative Coordination recently conducted a comprehensive review of that state's 27 licensing programs, recommending that six be abolished and seven others replaced by voluntary certification. The committee also is recommending that the state adopt, for the first time, written criteria on the need for regulation of each profession. The criteria would require that regulation be proven necessary, that normal market forces cannot adequately protect the public, and that users of the particular professional service can't be expected to exercise sophisticated judgment. Such criteria, if enacted, would open up all remaining Vermont licensing programs to challenge.
SOURCES:
• "Closing In on the Professions," Business Week, Oct. 27, 1975, p. 106.
• "AMA Accused of Illegal Restraint on Competition," AP (Washington), Dec. 23, 1975.
• "U.S. Sues to End Group's Ban on Drug Price Ads," Ibid., Nov. 25, 1975.
• "FTC Would OK Advertising of Eyeglass Prices," Los Angeles Times, Dec. 24, 1975.
• "Judges Pave Way for Eyeglass Ads," Ibid., Jan. 9, 1976.
• "Licensing Agency Curbs Pushed," Milwaukee Sentinel, Oct. 2, 1975.
• "Large-Scale Paring of State Licensing Boards Suggested," Rutland Daily Herald, Nov. 22, 1975.
WHAT PRICE CHILD CARE?
A government study of child care in California has found that state-subsidized child care centers cost 2.5 times as much as private centers, but aren't appreciably better. The Office of Educational Liaison study reported that the median cost of private child care is 68¢ per child per hour, compared with $1.73 in publicly-funded centers. The group's report called for a halt in expansion of state-subsidized care and recommended increased incentives for establishment of private centers in homes and at work sites.
Why are the publicly-funded centers so expensive? For one thing, they have to meet unrealistic Federal staffing requirements (one staff worker for every five children) and are poorly coordinated. In addition, they are generally run by local agencies for which "serving is not a typically high priority," in the report's gentle phrasing. Also, they must meet the paperwork requirements of both the Dept. of Education (which administers the program) and the Dept. of Health (which disburses the Federal funds).
To encourage the creation of more private centers, the report recommends tax incentives for individuals and companies who provide child care, technical help, loans, and a judicious relaxation of licensing standards. It also recommends that the state set up a voucher system to give needy parents a choice of child care facilities. Hopefully, the Brown administration will take these recommendations seriously.
SOURCE:
• "Report Criticizes Child Care Centers," AP (Sacramento), Dec. 25, 1975.
BANK COMPETITION ADVANCES
The Washington drive to remove many of the Depression-era controls on financial institutions (see "Trends," July 1975) is proceeding in both the House and Senate. The latter passed the administration's bank reform bill in December by a 79-14 vote. Provisions of the bill include allowing banks to pay interest on checking accounts, allowing savings and loan associations (S&Ls) to offer checking accounts, removing the Regulation Q ceilings on savings account interest rates, allowing S&Ls to expand into all types of loan activity, and expanding the allowable activities of credit unions. The purpose of the bill, according to Sen. Thomas McIntyre, is to expand competition and improve consumer service.
The House Banking Committee, meanwhile, has proposed a more drastic reform bill, which incorporates the Senate's removal of old restrictions, removes still others, but imposes tougher Federal regulation in other areas. The House bill would nullify state laws restricting bank branching in urban areas of over two million people, abolish the Office of the Comptroller of Currency and the National Credit Union Administrator, eliminate the regulatory powers of the 12 district Federal Reserve banks and retire their stock, and reduce the Federal Reserve Board to five (rather than seven) members, appointed for 10-year (rather than 14-year) terms. The bill would, however. create a new super agency, the Federal Depository Institutions Commission, to carry out all Federal regulation of banks, S&Ls, and credit unions. It would also bring state-chartered and foreign banks under Federal Reserve jurisdiction for the first time. Further, it would set up a complicated set of tax incentives and regulations concerning loans for low-cost housing.
The House bill's mixed-bag approach is certain to result in heated debate, and many of its provisions may be changed. Still, the prospects for increased competition in the financial community appear very good.
SOURCES:
• "Senate Approves Broad Changes in Bank Regulations," UPI (Washington), Dec. 12, 1975.
• "Overhaul of Banking, S&L Rules Proposed," Los Angeles Times, Nov. 5, 1975.
• "A House Study Stuns the Banking Industry," Business Week, Nov. 17, 1975, p. 44.
DE-LIMITING LIABILITY
One of the sacred cows of the government-subsidized nuclear power industry is the Price-Anderson Act, whose extension is currently pending in Congress. This law, first enacted in 1957 to spur acceptance of nuclear powerplants, limits total liability for catastrophic nuclear accidents to $560 million. Of that amount, only a fraction (originally $60 million, now $125 million) is provided by private insurance coverage; the balance is to be paid for by American taxpayers. And if a multibillion dollar nuclear accident occurred, the victims would be compensated—by law—only up to the $560 million ceiling.
This evasion of responsibility and public subsidy is finally coming under scrutiny and challenge. The controversial California Nuclear Power Plant Initiative (to be voted on in June) would restrict the operation of nuclear reactors in that state until Price-Anderson was repealed and the power companies assumed full liability for accidents. The California State Bar board of governors voted in December to ask the state's Congressmen to seek repeal of Price-Anderson. So did seven of the 15 members of the legislature's Land Use and Energy Committee.
Consumer advocate Ralph Nader has also called for repeal of Price-Anderson, arguing that the nuclear industry cannot logically maintain both that nuclear power is safer than other forms of power and that the risk is too great to be borne by conventional insurance. Syndicated columnist Tom Wicker has also called attention to the issue in a recent column. Hopefully, this particularly odious distortion of the free market will at last be wiped out.
SOURCES:
• "State Bar Urges Lifting of A-Plant Liability Limit," Los Angeles Times, Dec. 6, 1975.
• "Saving Energy Would Eliminate A-Plant Need," UPI (Sacramento), Dec. 4, 1975.
• "Reactors and Risks," Tom Wicker, New York Times, Dec. 13, 1975.
FEDERAL DELAY AGENCY
In 1972 economist Sam Peltzman (see "Spotlight," this issue), after extensive empirical study, concluded that the 1962 amendments to the Food, Drug, and Cosmetic Act were causing substantial delay in the introduction of new, potentially life-saving drugs—so much so that the cost in lives lost was far greater than the potential lives saved from unsafe drugs by the FDA's hyper-caution. New support for this conclusion is now available from two pharmacologists.
Drs. William Wardell and Louis Lasagna of the University of Rochester School of Medicine and Dentistry identify and quantify the "drug lag" caused by FDA enforcement of the 1962 amendments. In their report, Regulation and Drug Development, they point out that the average cost of introducing a new drug in the United States has increased from $1.3 million in 1968 to $10.5 million in 1975, just five years later. The average time between submission and approval of a New Drug Application is now five to seven years. As a result, the United States lags far behind most of Europe in taking advantage of new drug technology. Of 180 new drugs introduced in America and Britain in the decade beginning in 1962, 98 are available only in Britain. British doctors and patients have available a variety of respiratory, antibacterial, and cardiovascular drugs that have still not been cleared for use in the United States.
The drug lag situation is serious, so much so that the former chief of clinical pharmacology at Walter Reed Army Institute of Research terms it a crisis. Dr. Stephen L. DeFelice blames Congress for this situation, pointing out that the 1962 amendments it imposed on the FDA "accepted consumerism's false ideal of a completely no-risk existence."
The answer? DeFelice proposes, as do Wardell and Lasagna, more realistic FDA standards and other reforms. Other critics, such as Milton Friedman and the editor of Private Practice, would go much further, repealing the 1962 amendments or abolishing the FDA altogether, in favor of free-market testing and monitoring institutions and improved forms of insurance.
SOURCES:
• "FDA Rapped for Delay on New Drugs," Science, Sept. 12, 1975, p. 864.
• "The Drug Lag," Time, Sept. 29, 1975, p. 53.
• Regulation and Drug Development, William M. Wardell and Louis Lasagna, American Enterprise Institute for Public Policy Research, 1975.
• "Caution on New Drugs Is Killing Research," Stephen L. DeFelice, Moneysworth, Oct. 13, 1975, p. 15.
MILESTONES
Trade. Fair trade laws in all 50 states will be abolished this month, as a result of President Ford's signing a repeal bill in December. Repeal of the laws (which prevented retailers from offering discounts) is expected to save consumers $2 billion per year. Unfortunately, the repeal does not affect the price of liquor, since the 21st Amendment gives states the power to regulate the sale of alcoholic beverages. (Source: "Ford Signs Bill Ending Fair Trade Laws in States," UPI (Washington), Dec. 12, 1975)
Privacy. The IRS has decided to delete the question about foreign bank accounts from the 1040 form for taxable year 1975. The decision means the IRS is no longer subjecting taxpayers to the penalty of perjury regarding the sensitive subject of overseas bank accounts. Taxpayers are still expected to file additional documents if they have such an account, but can no longer be prosecuted as perjurers simply for checking the wrong box. (Source: "Foreign Account Question Omitted on '75 IRS Forms," Los Angeles Times, Nov. 14, 1975)
Big Government. A majority—57 percent—of registered voters would support a candidate who promises to reduce the number of Federal employees by five percent in each of the next four years. And 67 percent favor President Ford's plan to cut both taxes and spending by $28 billion. These October Gallup poll findings further indicate the extent of public discontent with big government. (Source: "The Right to Cut," Time, Nov. 24, 1975, p. 16)