Trends

FDA UNDER NEW ATTACK

The case against the FDA's regulation of drug development continues to build. The most recent addition to the arsenal is a blockbuster of a book, Innovation in the Pharmaceutical Industry, by economist David Schwartzmann of the New School for Social Research. Schwartzmann has examined in detail the new drug development process in American drug firms, comparing the periods of time before and after passage of the 1962 Kefauver-Harris amendments to the Food, Drug, and Cosmetic Act. His conclusion: the development of new drugs is being drastically curtailed by the FDA's stringent regulations.

Schwartzmann's case is impressive. His major new finding is that the after-tax rate of return on drug company R&D has dropped from 12 percent before 1962 to only 3.3 percent afterwards. The long-term effect of such a decrease will be to dry up investment in new drug development. This effect is already being observed, both directly and indirectly. Merck & Co. reduced research projects by 10 percent between 1969 and 1973. Over the past 10 years three other major drug firms have shifted 15 to 25 percent of their R&D from basic research toward development. "Scores of projects that would have been undertaken in the early 1960's are no longer economical," says Schwartzmann. The end results show up in the figures on new drug approvals: in the post-1962 period the number has averaged only 17 approvals per year, compared with 60 per year during 1957-61.

Two other consequences of the tougher regulations are also apparent. New drug research is shifting away from small firms to the industry giants and more and more of it is moving overseas. Economist Henry Grabowski of Duke University has analyzed the industry's "innovational output"—new drug sales during the first three years of a product's life. From 1957-61, the four largest drug firms accounted for 24 percent of the industry's innovational output; by 1967-71 the same four firms accounted for 48.7 percent. Small firms are being driven out of the market by FDA-imposed costs. Similarly, R&D is being forced overseas. Domestic drug R&D expenditures (in real terms) have grown only 2.3 percent per year during the past five years, while overseas R&D by U.S. companies has increased 19 percent per year.

The shift overseas has resulted in continued development and use of new drugs abroad, but unavailable here, a phenomenon known as the "drug lag." Pharmacologists Louis Lasagna and William Wardell of the University of Rochester have identified scores of new drugs used successfully in Britain for many years but still not approved by the FDA. Among these are all but one of the "beta blockers" used in cardiovascular therapy. Others include:

• Vincristine, a drug successful against acute childhood leukemia and Hodgkin's disease, developed by Eli Lilly.
• MK 641/MK 642, a broad-spectrum anti-bacterial agent more versatile than penicillin, developed by Merck.
• DMSO, an effective agent against arthritis, burns, ulcers, and various skin and muscular disorders, developed by Research Industries and others.
• Larrea divaricata, currently being tested abroad as an anti-cancer drug, developed by Chemex.

Merck is now doing 45 percent of its business abroad, as is Richardson-Merrell; Lederle is doing 50 percent, Pfizer 52 percent.

In the face of all this evidence, is anyone proposing to abolish the FDA? No. Congressional liberals have gone so far as to introduce further, more stringent drug safety regulations that would limit the sale of new drugs to a small portion of the population who would be monitored for adverse reactions over a period of years. Grabowski and Schwartzmann, by contrast, favor legalization of a two-tier market, permitting sale of not-yet-approved drugs alongside FDA-certified ones, allowing doctors and patients to choose. Adds Fredric M. Scherer of Northwestern University: "I would not prohibit a company from selling a drag just because it can't get some bureaucrat to put his stamp of approval on it. The bureaucrat is so worried about safety and keeps asking for more proof. He fails to consider that there may be people out there dying for want of the drug."

SOURCES:
• "The Hidden Cost of Drug Safety," Business Week, Feb. 21, 1977, p. 80.
• "Who's Afraid of the FDA? Everyone," National Enterprise, Feb. 9, 1977, p. 3.

AIRLINE DEREGULATION THIS YEAR?

The Carter administration has come out in favor of a bill to partially deregulate the airline industry. Over the private objections of Transportation Secretary Brock Adams, President Carter has voiced strong support for the concepts embodied in the Kennedy-Cannon deregulation bill presently before the Senate. The bill would significantly reduce the CAB's control over pricing and entry to the industry. It would permit fare increases of up to 10 percent and decreases of up to 20 percent without CAB approval; allow carriers (within certain limits) to expand their route mileage, add cities, and drop uneconomic routes without specific CAB permission; permit easier entry of new carriers; and deregulate air cargo altogether. It would also ease the CAB's statutory definition for deciding which applications for service are consistent with "public convenience and necessity."

The odds for passage of such a bill this year are much improved now that Carter has given his endorsement. The CAB's persistent failure to make significant reforms on its own, and the overwhelming evidence documenting the high costs of CAB regulation make some sort of deregulation nearly a certainty. Most recently the General Accounting Office estimated that passengers could have saved $1.4-1.8 billion each year between 1969 and 1974 in the absence of CAB regulation.

Some indications of the types of new service likely to be offered under deregulation are already evident. The CAB is now reconsidering World Airways' proposal for an $89 coast-to-coast fare (see Trends, March 1977). The British government has cleared the way for Laker Airways' no-frills $135 transatlantic air shuttle, subject to CAB and White House approval. And three airlines (including two newly-formed companies) have applied to the CAB for permission to begin extensive low-fare service to midwestern cities from Chicago's nearly-unused Midway Airport. This is just a taste of things to come once deregulation becomes a reality.

SOURCES:
• "Carter Wants Regulations on Airline Industry Eased, Los Angeles Times, March 5, 1977.
• "Compromise Bill," Aviation Week, Feb. 14, 1977, p. 11.
• "British Government Not to Appeal Laker Ruling," ibid., Feb. 21, 1977, p. 25.
• "Midway Case May Reveal Carter Policy," ibid., Feb. 7, 1977, p. 30.

RESTITUTION EXPERIMENT

The concept of criminals paying restitution to their victims is being given a further boost—by the Federal government. The Law Enforcement Assistance Administration is spending $2 million to evaluate experimental restitution programs in seven states: California, Colorado, Connecticut, Georgia, Maine, Massachusetts, and Oregon. Two-year demonstration projects, in which convicted criminals earn money to repay their victims, are being administered and evaluated in each of the seven states. LEAA hopes to identify the extent to which restitution saves taxpayers money, eases overcrowding of jails and prisons, and reduces the rate of recidivism (returning to crime after serving a sentence). Preliminary indications from isolated instances (see Trends, March 1977 and March 1975) are that restitution achieves all these objectives—in addition to being more just.

SOURCE:
• "Criminals Work for Their Victims in U.S. Experiment," UPI (Washington), Feb. 7, 1977.

TRUCK DEREGULATION IN SUBURBS

By making a change in its rules, the ICC has deregulated 25 percent of U.S. trucking shipments. What the agency has done is to expand the regulation-free zones around cities, thereby freeing up a substantial amount of metropolitan shipping. Ever since trucking regulation began in the 1930's, the area within cities has been exempt from ICC controls. But as cities have grown and suburbanized over the past 40 years, most metropolitan trucking has extended beyond city boundaries, making it subject to ICC regulation. In the New York City area, for example, the regulation-free zone extended only five miles beyond the city limits. The new rules expand this to 20 miles, encompassing a far greater portion of the metropolitan area. In the Atlanta area 80 percent of DeKalb County is now free from controls, compared with 40 percent previously.

Shippers are delighted by the expected decreases in rates, with cuts of up to 50 percent anticipated in some areas. Chambers of Commerce are also generally pleased, as are Transportation Department officials. Less happy are the previously-protected firms in the suburbs and their lobbying body, the American Trucking Associations. They are planning to take the ICC to court in an attempt to preserve their cartel status.

SOURCES:
• "Regulation-free Zones for Truckers in Cities Are Expanded by ICC," Wall Street Journal, Jan. 9, 1977.
• "Deregulation Hits the Urban Trucker," Business Week, Jan. 17, 1977.

GUN CONTROL MYTHS

Two more myths propounded by those seeking to curtail the individual right to own firearms have been discredited by a major study. The Washington-based Police Foundation studied the use of firearms in crime in 10 of the country's 15 largest cities. Their gun control laws ranged from virtually none (Houston) to extremely stringent (New York).

The first myth to be shattered was that inexpensive Saturday Night Specials are a major factor in gun-related crime. Not so, the researchers found. "Inexpensive firearms represented less than 30 percent of the confiscated firearms, suggesting that inexpensive handguns are not used as weapons of violent crime more often than other handguns," the study concluded. "Analysis of the types of firearms confiscated suggests that price is not a significant factor in the handguns used for the commission of crimes."

A second significant finding was that gun registration or other type of control will not prevent criminals from obtaining firearms, contrary to myth. From 20 to 25 percent of the criminal arsenal in this country is made up of stolen weapons. "Enough firearms are now stolen each year from law-abiding citizens to fill most criminal needs," the researchers concluded.

The study also pointed out the tremendously "cumbersome and expensive" effort that would be required to keep track of all firearms and their owners, given the millions of guns produced each year and the millions more transferred second-hand. All in all, the Foundation's findings should give serious pause to any honest advocate of gun control.

SOURCE:
• "Cheap Guns Not Criminals' Main Weapon, Study Finds," Los Angeles Times, Feb. 28, 1977.

BUREAUCRATS AS FAILURES

The common stereotype of bureaucrats as bumbling failures has received striking confirmation in a recent British study. Psychology professor Dan Miller of Brunei University compared the home lives of two groups of workers: those whose jobs are highly bureaucratized (with work and responsibility split into the smallest possible units), and those who still work as entrepreneurs (craftsmen, workers in small shops and factories, and self-employed). The differences in job conditions and the corresponding differences in personality and home life were striking.

Entrepreneurial jobs require responsibility, initiative, and flexibility. In bureaucratic jobs (whether in factories, large offices, or government), workers must subdue their independence and initiative, constantly deferring to authority. The job behaviors are duplicated at home. The bureaucratic husband tends to be passive and uncaring. "He's learned not to think, not to be autonomous, not to make judgments, not to take the initiative, not to take on responsibility beyond his narrow span," Miller says. These gentle, liberal men consequently do very little to help out at home, despite their equalitarian views. It is their wives who end up espousing women's rights. The entrepreneurs, by contrast, though typically less "enlightened" in their views, tend to share in household responsibilities and take an active role in raising their children. On the whole they make better parents—more involved, certain, and active. Bureaucrats tend to be uncertain and vacillating, favoring a "remote" style of parenting. "Children of fathers from this type of work structure are far more likely to be disturbed," Miller notes.

Unfortunately the trend in Britain, as in the United States, is toward ever-greater numbers of bureaucrats and fewer and fewer entrepreneurs. Perhaps Miller's findings will make all of us more aware of the tremendous psychological price our culture is paying for this trend in work styles.

SOURCE:
• "British Husbands Labeled Bunglers," Manchester Guardian, Dec. 12, 1976.

COLLEGES ATTACK HEW

Four years after passage of the Rehabilitation Act of 1973, HEW has finally prepared regulations to implement it. The law requires all employers and institutions which accept Federal aid to adopt affirmative action and nondiscrimination policies toward the "mentally and physically handicapped." Especially affected are colleges and universities, nearly all of which have succumbed to the lure of Federal aid.

The American Council of Education reports that many college administrations are up in arms over what they see as requirements for "intolerable expenditures" and "unwarranted Federal intrusion" into their academic policies. Schools must remove barriers to mobility, alter admission tests so as not to discriminate against the blind or those lacking motor skills, avoid steering handicapped students away from certain fields because of their disabilities (blind chemists?), and provide auxiliary aids such as tapes for the blind, interpreters for the deaf, jacks for tape recorders, etc. ACE lawyer Sheldon Steinbach estimates the cost of full compliance at all affected schools to be $4.5 billion. Why, he suggests, must these costly regulations be forced onto every single college and university? Wouldn't it make more sense to foster such efforts at a few institutions in each part of the country? But that smacks of "separate but equal," a concept which is anathema to HEW bureaucrats. Particularly hard hit will be small, private liberal arts colleges, whose officials fear that stringent enforcement of the rules would mean financial disaster.

Accordingly, the schools are fighting back. Steinbach reports that there has been "as large an unorganized, spontaneous response as on any piece of legislation" affecting higher education. Whether the ACE and the schools can get sufficiently organized to change the law (or HEW's regulations), though, remains to be seen.

SOURCE:
• "The Handicapped: HEW Moving on Civil Rights in Higher Education," Science, Dec. 24, 1976, p. 1399.

MARIJUANA: SAVINGS FROM NEW LAW

California's partial decriminalization of marijuana has been in effect for over a year, and statistics have just become available for the first half of that year. They show that overall marijuana arrests have declined by 39.7 percent for adults and 10.5 percent for juveniles. Law enforcement costs for marijuana cases during this period have declined from $7.6 million to $2.3 million, reflecting an especially large drop in felony arrests (from 29,229 to only 3909). Court costs for processing marijuana cases have declined about 80 percent, since most people caught with an ounce or less choose to pay the fine rather than go to court. The effects of the new law on the extent of actual marijuana use are harder to discern. Police officials in San Francisco and San Diego report no indication of increased usage, but the Los Angeles Police and Sheriffs Departments (both headed by strongly anti-marijuana chiefs) report making much larger marijuana seizures during the past year.

Perhaps in response to the reduction in court costs, the State Bar's board of governors has reaffirmed its support for full decriminalization of marijuana use. The action came in response to a resolution to that effect passed by the Bar's Conference of Delegates last fall. The Bar will officially support such legislation if it is introduced in the Legislature.

SOURCES:
• "Liberal New Law Cuts Marijuana Arrests in State," Los Angeles Times, Jan. 17, 1977.
• "Softer Marijuana Law Again Backed," Ibid., Jan. 22, 1977.

MILESTONES

• Gold Clause Contracts. Sen. Jesse Helms has once again introduced legislation (S.79) that would legalize the use of gold clauses in contracts. The measure would give individuals a way to seek protection against inflation by writing contracts calling for repayment in gold, not dollars. Last year, a similar bill was adopted by the House and received serious consideration in the Senate as an amendment to. the Bretton Woods Agreement amendments. (Source: Men and Money, Jan.-Feb. 1977.)

• No Right to Jobs. "There is simply no constitutional right for homosexuals to work for an unwilling employer." So ruled the California Court of Appeals in January. Properly limiting the role of the State, the court's decision pointed out, "The State is in no way arbitrarily interfering with private employment of homosexuals. It has simply remained neutral." Now if only the same rule of reason could be applied to all other groups which seek the arbitrary interference of the State in private employment! (Source: "Homosexuals Have No Right Against Job Bias, Court Rules," AP (San Francisco), Jan. 5, 1977.)