Trends

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Killing a Life-Threatening Regulation

For people afflicted with AIDS and other terminal illnesses, deregulation may now make the difference between life and death.

Taking what the Wall Street Journal called "a giant step for the sick and dying," the Reagan administration has instructed the Food and Drug Administration (FDA) to ease its regulations so that patients can more quickly receive experimental drugs that might save their lives. In a radical departure from current procedures, the new rules will make available (through a physician's prescription) drugs that have been tested but have not yet been formally approved by the federal government. "This means that, in general, persons with life-threatening and serious diseases will be able to obtain experimental treatment years earlier than is now the case," says a statement from the office of Vice President George Bush, who chairs the president's task force on regulatory relief.

The current morass of FDA requirements demands that new drugs be proven not just safe but effective. Not surprisingly, manufacturers of a new drug have had to wait as long as nine years to get the government's stamp of approval. "Not only has the FDA been seeking risk-free drugs, it also has been applying the most rigorous methods of science to decide on the efficacy of each new drug," noted the Journal. "The result has been to deny patients modern therapy even when it might save their lives."

The new rules will ease the reporting requirements on drug researchers and create exemptions to those requirements. Furthermore, pharmaceutical companies will be allowed to charge for their products. Some patients can now get experimental medicines under the FDA's special "compassionate plea" program, but companies have to give the drugs away for free. By allowing drug manufacturers to receive money for their products, the new rules will "ensure that drug companies have enough incentive to make these drugs available," explained FDA Commissioner Frank Young. The ability to charge will also allow small companies to compete in drug development, since they'll be able to test expensive drugs they otherwise couldn't afford to test.

The Journal proclaimed that the eased restrictions will provide "a major benefit to American life." Maybe AIDS (and other) patients won't have to go to Mexico, Canada, or their own underground clinics anymore to get treatment. The FDA has finally realized that these people are willing to accept greater than average risks. They want a chance to live—and now they'll have it.

NATO Lovers Forced to Defend Their Passion

Asking the question "Should the United States withdraw from NATO?" in respectable Washington company was once a faux pas on the order of serving Hamburger Helper to your Hindu in-laws. No more.

Just how far NATO skeptics have come was demonstrated at a recent conference sponsored by the D.C.-based Cato Institute. Over 100 journalists, policy analysts, and the like heard a tri-cornered debate between economist Melvyn Krauss, Georgetown professor Earl Ravenal, and U.S. Ambassador to West Germany Richard Burt. Presiding over all this was The New Republic's impish editor, Michael Kinsley.

Krauss, author of the new book How NATO Weakens the West (excerpted in REASON, Nov. 1986), stressed two points in arguing for a phased U.S. withdrawal. First, "we would save a lot of money." (NATO-related expenditures by the U.S. government are estimated at $130 billion annually.) Second, "NATO has created weak allies," and weaning Western Europe from U.S. subvention would encourage the Europeans to take more seriously the need to build up their defenses.

Ravenal agreed that the United States ought to disengage from NATO, though he wondered if Krauss, like neoconservative anti-NATO intellectual Irving Kristol, isn't motivated by "petulance and spite" at our allegedly decadent allies.

Ambassador Burt, looking suave and ambassadorial (when he used to work for the New York Times, said one bewildered source, "he looked like a regular guy—like a reporter"), summed up his case with the old aphorism "If it ain't broke, don't fix it." He argued that NATO is responsible for 40 years of peace in Europe and that anti-NATOites "play right into the hands" of Europe's quasi-pacifist peace movement.

Pace Burt, Krauss argues that getting out of NATO—and specifically, ceding control of medium-range nuclear weapons on European soil to the Europeans—would "undermin[e] European neutralism and pacifism." In a Wall Street Journal essay—"Let Europe Negotiate with Gorbachev"—Krauss suggested this and other advantages of releasing the nuclear missiles to Europe. Citing historian Adam Ulam's assessment that the Soviet Union most fears a politically united, rearmed Europe that would force it to deal with two super-powers instead of one, Krauss argued that U.S. withdrawal from the European scene could actually strengthen the West's position vis-à-vis the Soviets.

Recent opinion polls show that a majority of British, French, and Italian people want their own governments to keep nuclear weapons but also want U.S. missiles banished from Europe. Only the Germans, reports The Economist, want Americans "to help in the defence of Europe through NATO."

Opinion polls in this country have showed similar reluctance to entangle the U.S. government in the defense of Europe. As Krauss noted, "the elite are clearly in favor of NATO. The average guy is against NATO." That elites like Burt and Kinsley have joined a once-verboten debate suggests that NATO isn't as fixed as it used to be.

Dissecting Congressional Votes: More Formaldehyde, Please!

The Competitive Enterprise Institute is at it again. First the Washington, D.C.–based public-interest group released congressional ratings with a twist—the tax-eaters were graded by their fealty to free enterprise. (Trends, Jan.). Now CEI has broken down the ratings for votes in the 99th Congress into discrete issue groupings—pork barrel, trade, agriculture, and budget. "Our study constitutes the most comprehensive analysis available of congressional voting on issues of competition and free market principles," says Fred Smith, CEI's president.

The new ratings detail the intraparty divisions often overlooked by mainstream pundits and testify to the persistence of regionalism in American politics. Among the nuggets of information gleaned from CEI's "CAT Scan of Congress":

• Democratic "neoliberals" really are better on trade than their paleo comrades. New Democratic heartthrob Bill Bradley (D–N.J.) notches an 88 score in support of free trade, and Colorado's Gary Hart, who's left the Senate for an 18-month experiment in wind-blown platitudes, earned a 75. (Senate Democrats averaged a mere 28.)

• New Speaker of the House Jim Wright (D–Texas) has the worst voting record since the beginning of time, or at least since Lyndon B. Johnson fled this vale of tears. Wright voted wrong on 21 of 21 "pork barrel and subsidy" roll calls, 7 of 8 trade votes, and on all 5 agriculture issues studied. Plus (not reflected in CEI's index) he thinks we need new social programs and more defense spending. Tip, come back!

• Jesse Helms (R–N.C.), bane of liberals and secular humanists, is an out-and-out protectionist. He scored just 25 on trade issues. Similarly puny grades went to fellow Republicans Newt Gingrich of Georgia (38) and Sens. Bill Cohen of Maine (25), Paul Laxalt of Nevada (29), Al D'Amato of New York (25), Arlen Specter of Pennsylvania (0—yes, 0), and South Carolina's courtly geezer Strom Thurmond (25).

• Most-protectionist Senate delegation is Ohio's, where flyboy John Glenn and the abrasive Howard Metzenbaum, both Democrats, rack up 0s. Worst pork barrelers are from Hawaii, where Democrats Spark Matsunaga and Daniel Inouye average a score of 6.

• Perfect 100s in trade were notched by Republican Sens. Mark Hatfield (Oreg.), Phil Gramm (Texas), and Washingtonians (the state, that is) Dan Evans and Slade Gorton, the latter a casualty of the '86 elections.

• Ted Kennedy's sleek new (political) look isn't all hype. The Taxachusetts Democrat scored a 60 in CEI's budget category, though he was predictably dismal in other areas.

There's more juicy red meat for political carnivores to sink their fangs into. One caution: Military spending—about one-third of the federal budget—is excluded from CEI's laundry list of "budget" votes. Including it would wreak havoc with conservative Republican scores and surely boost the ratings of economy-minded skeptics like Sens. William Proxmire (D–Wisc.) and Hatfield.

All in all, these are fascinating data for zoologists studying Americanus politicianus. We always knew the creatures were dangerous; now we see their individual predatory habits that much clearer.

Giving Credit Where Credit Is Due

The sky used to be the limit for credit-card interest rates, but now the sky is falling. It's happened without new laws or new regulations, and—interesting development—consumer groups may have ended up demonstrating the value of relying on the market.

Angry that banks were paying about 6 percent on deposits but "still charging cardholders a whopping 18 percent and more," Consumers Union, publisher of the popular Consumer Reports, launched a "Fight and Switch" campaign to let the public know that at least some banks were offering lower rates. Not only that, but it specified which banks were offering lower rates.

Another group, San Francisco–based Consumer Action reported that in the first three months of the year it received 9,000 requests for its list of banks offering low-interest cards—more than in all of 1986. Pointing to such efforts, a New York Times editorial earlier this year raised its voice against loud cries from many quarters for government action to limit credit-card interest rates.

Congress is still considering bills that would clamp ceilings on interest rates and require all credit-card applications and solicitations to disclose the card's financial terms. Such requirements, particularly rate ceilings, could very well make it impossible for riskier customers to get credit.

But the marketplace itself looks to be heading off legislation. American Express has introduced a new card, called Optima, which charges only 13.5 percent on outstanding balances. Its bank competitors have already begun to slash their rates. Citibank, the bank with the most credit-card accounts, has cut its rate for "preferred" customers to 16.8 percent. (But it still charges an exorbitant 19.8 percent to most cardholders.)

"American Express is the 500-pound gorilla that consumers have been waiting for," Elgie Holstein, director of Bankcard Holders of America, a consumer group, told the Wall Street Journal recently. AmEx, she said, "has the coast-to-coast marketing muscle to go head-to-head with Visa and MasterCard and make interest rates an issue."

Want the market to work? Cut your Visa plastic in half, mail it back, and go get a better deal.

Can Baby Grow Up?

The Bells are ringing with delight. It's been three years since Ma Bell cracked up. And now the Justice Department has recommended that regional telephone companies, the so-called Baby Bells, be allowed to compete in long-distance service outside their regions, in equipment manufacturing, and in information services. They are currently barred from these businesses by the 1984 consent decree that broke up the Bell System and ended Justice's antitrust suit against the old AT&T.

Even more significantly, perhaps, the recommendations argued that regional companies should be permitted to provide long-distance service within their areas in states that agree to end local monopolies. In other words, Baby Bells would give up their monopoly status in exchange for the right to compete freely in long-distance.

The recommendation still has to win the approval of federal judge Harold Greene, the communications czar who administers the breakup agreement. He'll decide later this year whether the consent decree should be modified.

If Greene goes along with the recommendations, the Bell companies will probably plunge into information services right away—starting with electronic Yellow Pages. Suppose you need a florist, any florist, in time to get a Mother's Day bouquet delivered tomorrow. Electronic Yellow Pages would let you call the operator and get a list of florists in Mom's hometown. Or you could connect your computer to the phone company's and retrieve phone numbers and even advertising directly. (Printed Yellow Pages would still exist, of course.)

Whether Baby Bells would trade local-monopoly status for a potential piece of the long-distance market is a tougher question. Simply convincing legislators to relinquish their states' power to grant monopoly franchises would be hard enough. And Charles Rule, the Justice Department's acting antitrust chief, told the Wall Street Journal that some regional companies would likely be unwilling to sacrifice their monopolies to experiment with long-distance. The aim of the proposals, he said, was to promote "long term and relatively gradual change."

Long-term, yes. Gradual, yes. But also dramatic.

Milestones

? Rent control loses control. Calling it "unreasonably overbroad, ill-tailored and severely restrictive," a federal judge has struck down commercial rent control in Berkeley. The judge ruled that a section of the ordinance narrowly limiting the grounds on which a property owner may refuse to renew a lease violates the constitutional ban on impairment of contracts. Officials say that rent control in other parts of Berkeley may now be similarly challenged.

? Sign of the times. Even the socialist newspaper In These Times endorsed the move to raise the 55-mile-an-hour speed limit. In a fit of uncharacteristic decentralism, the paper wondered, "Why has the federal government imposed a nationwide limit on driving speed when conditions vary from state to state, and the people on the scene are qualified to decide for themselves and are the ones most directly affected?"

Global Trends

New Zealand Unchained…Well, Almost

CHRISTCHURCH—New Zealand had a banking crisis immediately following the election of David Lange's Labour government in July 1984. No foreign currency was available, so banks could not open for foreign-exchange dealings. These had been suspended by the outgoing prime minister, Robert "Piggy" Muldoon, on the day before the election—the last of his many drastic economic interventions.

After some constitutional skirmishing over the transfer of power, the new administration acted decisively. It devalued the currency by 20 percent and abolished the interest-rate and price controls shackling the economy. After steady reform, New Zealand's financial system is on its way to becoming the least-regulated in the world. Fixed exchange rates and exchange controls of 50 years' standing are gone, and competition between financial institutions has been allowed.

Behind these changes is a revolution in attitudes. A new generation has assumed control in politics and commerce. Where previously decisionmakers sought to avoid risk and enforce conformity, the new professional managers are eager for competition and challenges. Roger Douglas, the finance minister who designed the Labour government's economic policy, epitomizes the new breed.

An important cause of this revolution is the realization that decades of socialist controls had hurt New Zealand. Its per capita income fell from one of world's highest to about 30th. Its infant-mortality rate exceeded those of Puerto Rico and Poland. The jibe was that New Zealand was the only country entering the Third World from above.

In response to this decline, the Labour administration has acted to free the economy. Some moves had been initiated by the previous National Party government, but the pace has been quickened. Lange and his advisers are pragmatic; they deregulate when it can be done.

The economy is still far from free, though. Most direct import controls have been phased out—but high tariffs are replacing them. Trade union membership is compulsory, with wages negotiated on a nationwide basis. Central-government spending consumes 40 percent of national income, so taxes are high.

There is much to applaud in the Labour government's economic policies. But there is an inconsistency in its aim. In freeing the economy so that more income is available for redistribution, Labour has overlooked the importance of inequalities, which provide the incentives on which economic growth depends.

—Richard Manning

Island in the (Reform) Stream

COLOMBO—Privatization is coming to many sectors of the Sri Lankan economy that were, until quite recently, government monopolies. For example:

• The island-wide government telecommunications monopoly is a candidate for privatization. Four foreign companies are lobbying to buy it.

• Parliament has privatized insurance, and major British firms are joining local companies to satisfy the new market.

• The manufacture of sugar, heretofore a government monopoly, has been opened to the private sector.

• Local entrepreneurs are operating fleets in competition with the state-owned Ceylon Transport Board.

• The amount of land that an individual is allowed to own has increased from 50 to 100 acres, and the current one-house-per-individual limit may be raised.

Slowly, this island nation is expanding the bounds of individual liberty.

—Milinda Moragoda

Global Roundup

? Warsaw wants its MTV. The satellite dish is invading Poland. About 300 Poles already have the dishes, which provide access to Western TV. Another 1,500 have applied to General "Sunglasses after Dark" Jaruzelski's government for permits the state has now decided it will require; no action yet on those requests. Polish entrepreneurs seem to expect a government surrender: dish production is gearing up.

? Disarming Pretorian guards? Defections by anti-apartheid whites are crippling South African President P.W. Botha's National Party. Led by former ambassador to Britain Denis Worrall, dissident whites—including golf great Gary Player—are demanding that blacks be accorded genuine political rights. Meanwhile, the radically decentralist alternative to apartheid pushed by REASON contributors Frances Kendall and Leon Louw in South Africa: The Solution is the hot topic in political circles: no less than Winnie Mandela, wife of the imprisoned ANC leader Nelson Mandela, is talking up the book.

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