"There has been a feeling that, in America, it is simply impossible to kill or even slow down the industrial goose that lays the golden eggs....But, today, the goose may well be in the oven...."
The American businessman has been the driving force in the economic success of our free-enterprise system. Today, his survival is being threatened — not by the hazards of the market place or the pressures of competition but by the very government he is taxed to support and which was instituted to secure his liberty.
In this book Dan Smoot — a former FBI agent and member of the FBI headquarters staff in Washington, who has since become a well-known lecturer and author — presents the full and alarming spectrum of government forces now being brought to bear against one of our vital assets, the free American businessman.
Whether you are an employer or employee, in a large business or small, in manufacturing, engineering, a service industry or agriculture, The Business End of Government is pointed at you.
Mao Tse-tung, the father of the Communist dictatorship in China, is widely quoted as having said: "Power comes out of the barrel of a gun." According to a recent report of the Senate Internal Security Subcommittee, Mao has used that power to murder nearly 64 million of his own people — many for no other reason than that owning a small piece of land made them capitalists.
Identifying the same principle, George Wash ington, the father of our country, observed: "Government is not reason; it is not eloquence; it is force." But Washington, loving liberty, devoted himself to binding down that force with the once powerful chains of the Constitution, defending the right of free men to live, produce, and prosper in a free economy.
It is therefore a curious fact that both George Washington and Mao Tse-tung would instantly recognize from its title what this book is all about. Simply put, the theme is that liberty is destroyed when freedom of enterprise is under the gun of government. President Washington loved liberty, and by warning of the business end of government assured freedom for millions.
Mao Tse-tung hated liberty, and applied the principle to destroy freedom and to murder millions. My friend Dan Smoot, the author of this book, is concerned that by their assaults upon the Constitution of the United States our leaders have turned from the course of George Washington to that of Mao Tse-tung. I believe Mr. Smoot is right, and that those of us who love America must do all we can to reverse this trend while there is still time to do so.
The book you are about to read by that distinguished commentator is the best general outline I know of how a regulation in an area remote from our own experience or interest can quickly spread to nearly all of our activities.
It has been published as part of a continuing educational effort of The John
Birch Society, on whose Council I am proud to serve, but distribution of this
book will by no means be confined to members of the Society. I know that
thousands of businessmen who read it, some of whom will know nothing at all
about the patriotic efforts of our Society, will also wish to purchase copies
for their friends and customers. It should be read by all Americans who are
interested in the protection of their freedom, and distributed among their
friends. A suitable reference book is The Invisible Government, by the
same author, and I do urge you to read both, and to get involved. For those of
you who want to help with this important project quantity prices are listed
on page 225. [The Business End of Government is out of print]
American business, the most productive in the world, and all of its customers (consumers) and employees are under the gun. And that gun is in the hand of a bureaucratic giant that is beginning to make Big Brother look like a pygmy. Recently the editors of Industry Week asked the federal Office of Management and Budget how many federal regulatory agencies are now operating, only to find there are so many that no one in Washington even knows their number. A year ago the Federal Register, in which the bureaucracy publishes each new executive decree, bulged to nearly as many pages as there are in the entire Encyclopaedia Britannica.
Congressman James A. Haley reports that there are now, at all levels, some 13 million civilian federal employees, snoopers, and bureaucrats of assorted stripes and scents, whose salaries alone cost us about $107 billion a year.
And this is just the tip of the iceberg. There are in addition a vast host of federal advisors. The Office of Management and Budget lists 1,724 consulting advisory commissions, including 40 added by the Nixon Administration. Congressional researchers contend that there are as many as 1,800 additional "outside" advisory commissions, plus another 1,400 "inter-agency" committees, advising the bureaucracy.
In order to satisfy the demands of these masters of regulation-by-decree, American business is being choked in paper work. Preparation of the forms they require is costing American industry as much as $75 billion a year, to which must be added the $10 billion a year the taxpayers lay out to process that same paper once it is in the hands of the bureaucracy. None of my fellow businessmen will be surprised to learn that the National Archives estimates that there are over one million forms currently in use by federal agencies. In fact, says the Wall Street Journal, the federal bureaucracy each year generates over fifty pages of records for every man, woman, and child in the country. Some 250,000 federal workers now do nothing but file forms and papers into the two million filing cabinets maintained by the Executive branch of government. Those cabinets cover 25 million cubic feet of floor space — twelve times the rentable floor space of the 102-story Empire State building.
All this costs money. According to the Tax Foundation, total spending by the federal government over the fifty-year period of 1922 to 1972 jumped from $3.8 billion to $248 billion. For fiscal 1974, federal spending will bound upward by another $20 billion for an increase of 8.2 percent in one year. The fact is that the federal government alone, in fiscal 1974, will take an estimated 25.6 percent of everything we Americans make. And this does not include the 15 percent of our income that will be taken in taxes and spent by state and local bureaucrats.
And the situation is getting worse as control is piled upon control and bureaucracy upon bureaucracy. Consider two typical examples.
In the decade after the regulations of the new Environmental Protection Agency take full effect, for instance, anti-pollution controls for automobiles alone will siphon $95 billion from the pockets of American consumers — a sum greater than the worth of all goods and services produced in Canada for one year, and three times the annual total production of Mexico. The ten-year outlay to be demanded of business and the taxpayers to "clean up the environment" in conformity with new bureaucratic standards is estimated at $287.1 billion — a sum more than five times our total military budget for 1974. Businesses are already strangling in such costs — with many, including a number of manufacturers of badly needed paper, being forced to shut their doors — and there is no evidence that this outlay will do the job.
Equally outrageous is the Occupational Safety and Health Administration, which has unconstitutionally assumed virtually unlimited rights of entry and inspection of every place of business in the country. A policeman may not be able to search the home of a murderer without a warrant, but an OSHAcrat may enter your place of business whenever he likes — and anyone who warns an employer that the man from OSHA is on the way is subject to a $1,000 fine and six months in jail. Thousands of employers have been fined millions of dollars for violations of incredible rules hidden away in the Federal Register and bureaucratic archives. In fact, when Senator Carl Curtis went to the Library of Congress to obtain a copy of the OSHA rules, regulations, and appended documents, he was told that he was asking for a pile of papers in excess of 30 feet in height - and that the Library could not check them out even to a U.S. Senator because copies of some of the OSHA regulations were so hard to obtain that it couldn't afford to lose a single copy. Yet, with the OSHA bureaucrats acting as accuser, judge, and jury, American businessmen may be fined $1,000 a day for violating any one of those very regulations!
There are, unfortunately, many scores of EPA's and OSHA's harassing productive Americans in countless ways. Our economy and our liberty are under the gun. And, if it continues, who can doubt that the business end of government will soon deliver the coup de grâce?
I urge you to get involved. I know that if enough of you will help, this book can have a powerful educational impact. Often my friends in business, exasperated and distraught at what is happening, declare that they have given up hope of stopping Big Government. Men who ten years ago couldn't even see the problem now shake their heads and wonder if it is too late to save our system of free enterprise. I believe that if we can alert enough Americans to WHAT is happening we will gain the time we need to tell them WHY it is happening. Mr. Smoot's book provides more hard detail on the WHAT of our peril than I have ever before seen between two covers. It is exactly the tool we businessmen have needed to alert our friends, suppliers, customers, and employees. I urge you as strongly as I know how to help get the message of The Business End of Government to everyone you know. Here at last is something you can do that will really count.
Win. J. Grede
Vice-Chairman, Grede Foundries, Inc.
Past President, National Association of Manufacturers
CHAPTER 1 - RAILROADING THE PUBLIC [BACK TO TOP]
Calvin Coolidge once said that the business of America is business. He was right. Yet through a large part of our history there have been recurring periods of broad concern with protecting the people against business.
The only effective instrumentality for protecting the public against harmful business practices is a free-market system in which the consumer is king. By exercising free choice to buy or not to buy, consumers can compel businesses to do what a preponderance of consumers want done. When the job of protecting consumers is turned over to government, consumers are dethroned. Government decides what they shall be permitted to buy and at what price and under what conditions. The result is always more harmful to the public than the business practices from which government promised to protect them. Every consumer-protection movement in American history has moved the nation in the wrong direction, has done the opposite of what it promised, has diminished the freedom of the people while augmenting govern ment's oppressive power.
America's first major consumer-protection movement produced the Interstate Commerce Act of February 4, 1887. This law created the Interstate Commerce Commission (ICC) as an independent executive agency to regulate railroads. Much rhetoric in favor of the ICC law was voiced by reformers and politicians who called the railroads coercive private monopolies, and accused them of bribing or intimidating government officials, of charging the public outrageous rates, of paying low wages, of rendering inferior service, of discriminating against certain industries or geographical areas while favoring others.
These accusations against the railroad interests were generally true, but the label "private monopolies" was inaccurate. It is quite impossible for a truly private enterprise of any kind to acquire such power over any segment of the national economy. Monopolies can come into existence, and survive, only when supported by the force of government. The offending railroads of the Nineteenth Century were built with government subsidies, and they operated under laws (both federal and state) which gave them special privileges. Their undesirable practices were not products of the free-enterprise system. They were created by government. And the ICC remedy was further curtailment by government of the free-enterprise system.
The Interstate Commerce Act did not break up the railroad monopoly. The monopoly disintegrated under the assaults of competition. Even with its government-granted special privileges, the railroad monopoly was already dying before the consumer-protection propaganda for government to control it was ever begun. The big profits being made in railroading encouraged accumulation of private capital to build competing lines, especially in areas where established railroads were most abusive. The railroads tried to form private cartel agreements among them selves to prevent rate-cutting and other bother some competitive practices. But always there was some maverick who thought he could improve his lot by breaking out of the cartel and getting a larger share of the market by reducing rates and providing the public with superior service.
Unable to maintain their government-granted monopoly, the powerful railroad interests turned to government to do the regulating and price-fixing which they were unable to do themselves. In fact, the pressure that induced Congress to enact the Interstate Commerce Act of 1887 did not come from reformers bemoaning abuses by the powerful railroad interests; it came from the railroad interests themselves, asking Congress to shield them against the harsh winds of competition.
The Interstate Commerce Commission has tried to do that. Though the popular myth is that it was created to protect the public from rate-gouging by the transportation industry, the ICC has devoted much of its activity to keeping transportation rates up rather than down. At first, the ICC prevented railroads from cutting rates and forced all railroads to charge the same, holding that rate-cutting created destructive competition and caused chaos in the industry. Thus the consumers, who were being "protected" from the railroads, were denied the lower prices and better services that some railroads wanted to provide. The established railroads, thus protected, were satisfied — for a while.
Eventually, the development of rival modes of transport (barge lines, trucks and buses, pipelines, airlines) made transportation a keenly competitive industry. It was then that the railroads began to pay a heavy price for having been sheltered by government from competition among themselves. They had lost the resilience and inventiveness necessary to react quickly and creatively in a sharply competitive market. In fact, the regulated railroads, in their cumbersome and ponderous administrative procedures, had come to operate much like government regulatory agencies. There was monumental mismanagement of railroads — encouraged, if not actually fostered, by government.
Moreover, the railroads were now saddled with heavy costs imposed, directly and indirectly, by government. They were forced by the ICC to continue services that occasioned heavy losses. The federal Railway Labor Act of 1926 gave monopolistic control of the railroads' operating employees to the unions; and the unions used their monopolistic power to impose upon railroads high labor costs, low labor productivity, and occasional crippling strikes.
Operating under such burdens, and prohibited from cutting rates to match those offered by trucks and barge lines, railroads could not effectively compete. In 1900, about 90 percent of all intercity freight was hauled by railroads; in 1950, about 60 percent; in 1970, only about 40 percent.
Occasionally, railroads applied ingenuity and innovation to bring down costs so that they could offer better rates to the public and thus get more business. For example, in the early 1960's, Southern Railway invested $13 million in 500 Big John hopper cars, each of which would carry 90 tons of grain. This increase in hauling capacity so dramatically reduced costs that Southern Railway asked permission to reduce by 60 percent its rates on multiple-car grain shipments. Truckers and barge line operators objected, and the ICC refused Southern's request.
Within a short time after the close of World War II, private automobiles, buses, and airlines had captured most of the long-haul travel business from railroads. Nonetheless the ICC forced railroads to continue running long-haul passenger trains at losses totalling millions of dollars a year.
On October 30, 1970, President Nixon signed the Rail Passenger Service Act setting up Railpax (later called Amtrak), authorizing use of federal tax money to finance a corporation to operate a nationwide railroad passenger system. The public was assailed by much rhetoric about this law; they were assured that it would provide the American people with the kind of rail travel Americans want and deserve. The actual purpose of the law, however, was to let railroad companies do what the ICC would not permit — that is, divest themselves of unprofitable passenger-train operations. The law allows railroads, if they wish, to transfer all of their intercity passenger operations (except commuter trains) to the new tax-financed corporation.
That was a great relief for many railroads, but it did not come soon enough for all. On June 22, 1971, the nation's biggest railroad — Penn Central, with assets estimated at $6 billion — formally declared itself bankrupt. On December 10, 1971, Congress authorized a 13.5 percent pay raise for railroad workers. Five days later, trustees of the bankrupt Penn Central told a Congressional Subcommittee that the railroad would need $61 million between then and March 1, 1972, just to meet the pay raise ordered by Congress. The trustees said they would be obliged to shut down all Penn Central operations within 45 days if they did not get the money. Congress responded with the Emergency Rail Services Act of 1971, authorizing government guarantees of loans up to $125 million to any railroad undergoing reorganization under the Bankruptcy Act. An entire industry had been crippled because of the government controls it had itself invited years before.
The story of other modes of transport is not identical with that of railroads, but it is some what comparable.
Interstate truck lines came under the control of the Interstate Commerce Commission in the late 1930's, because trucking firms asked for it. They could not control price-cutters among themselves — the maverick firms which wanted to get more business by giving the public lower rates — so they asked government to do it for them and government was glad to oblige. Now the ICC will "decertify" or "delicense" a trucking firm for interstate commerce operations if it tries to cut prices or otherwise engage in practices that the ICC regards as "destructive competition."
Big trucking firms that operate in interstate commerce are tightly controlled by the ICC. Complying with ICC regulations is a heavy load on them, but there are compensations. The ICC protects their long-haul business against competition from small trucking firms. It does not take a huge outlay of capital to start a trucking firm, as it does to start a railroad. Hence, there are thousands of small entrepreneurs in the trucking business. But not many of them are ever allowed to grow into big businesses operating across state lines in competition with already established ICC-regulated firms. Truckers cannot operate legally in interstate commerce with out ICC certification — which is not easy to get. One case in point:
Joe Jones Jr., a disabled black veteran with a family of ten children, had a little trucking business in Atlanta. In 1966, the Small Business Administration lent Jones $25,000 to help him buy a big truck to handle long-haul jobs. Jones bought the truck and contracted for some cargoes; but the Interstate Commerce Commission would not give him a permit to haul across state lines in competition with the firms it was "protecting" by regulation. After making seven fruitless appeals to the bureaucracy for a common-sense ruling, Jones said: "I've been pushed to the verge of bankruptcy, because the government encouraged me to buy expensive equipment so I could help myself, and now they won't let me use it."
Entrepreneur Joe Jones suffered, but so did the consumers who would have benefitted from the lower trucking prices he was willing to work hard hours to provide.
Then there are the airlines, which have been under government subsidies and government regulations from the beginning. In the 1930's, the airlines became disappointed with ICC regulation — in part because there was not enough of it to suit them; there was still too much "destructive competition" among airlines, and not enough tax-subsidization (through mail contracts and otherwise). The result was that Congress passed the Civil Aeronautics Act of 1938, creating the Civil Aeronautics Board (CAB), a special regulatory agency for airlines. The CAB is the absolute czar of the air-transport industry. It fixes rates for air travel and air freight, and determines which airlines may operate in interstate commerce, and on what routes. It is also in charge of dispensing subsidies of tax money to airlines.
The Civil Aeronautics Board began its career by freezing competition in the air-transport industry exactly where it was when CAB took control. When the CAB was created, there were nineteen operating domestic trunk line carriers (airlines operating long hauls in interstate commerce). The CAB certified them all as authorized interstate carriers, and has never certified another one since. Not one new domestic trunkline carrier has been permitted to enter the field of competition since 1938.
By 1973 the original 19 domestic trunk lines of 1938 had shrunk to 11: American, Braniff, Continental, Delta, Eastern, National, Northeast, Northwest, TWA, United, and Western. Most of the shrinkage resulted from weak airlines merging with stronger ones — with CAB approval, of course.
The ingenuity and aggressiveness of private enterprise were, of course, applied to bring competitiveness into the air-transport business and give the public lower rates — despite a Civil Aeronautics Board which is dedicated to maintaining a monopoly for the certified trunk lines and to keeping rates high enough to avoid "destructive competition" in the industry. One major competitive threat to the certified trunk lines came from nonscheduled airlines — firms which were exempt from controls by CAB, under the 1938 law, because they did not operate as common carriers in the sense that they offered regularly scheduled flights. That is, when they could get a profitable load (of cargo or passengers or both) for a particular flight, they would make the flight, at rates below what the trunk lines charged. The "nonskeds" became so popular because of their low rates that they were soon running what almost amounted to regular route service on long hauls, thus cutting into the business of the regulated trunk lines.
The trunk lines were quick to complain. They brought pressure on CAB until, in 1947, the CAB responded by deciding it had authority to require nonscheduled airlines to register with the Board. With registration came regulation, and the CAB rather quickly regulated the nonskeds out of serious competition with regular airlines. In 1949, when CAB asserted full regulatory control over non-scheduled airlines, there were about 150 such firms — offering good, safe service to the public at lower prices than the scheduled airlines offered. Today, there are fewer than 12 such firms; and CAB so circumscribes what they can do that they no longer of fer the general public any real alternative to doing business with the officially approved airlines.
Another competitive threat to the CAB- protected airlines came from small feeder airlines, serving communities the big trunk lines could not profitably serve. Most feeders originated as small, tax-subsidized businesses, under CAB control because their operations crossed state lines. The CAB certifies them, and, from time to time, gives one of them "operating rights" over certain short routes that were previously assigned to one of the majors. But the CAB is careful not to let the feeders grow into a real competitive threat to the 11 approved trunk lines. Note, for example, the following from a CAB decision in the Bonanza-TWA Route Transfer case of 1949:
"We would like to emphasize again that we have neither the disposition nor the intention to permit local air carriers to metamorphose into trunk lines competitive with the permanently certificated trunk lines. The local service carriers were certificated by us as an experimental effort to bring useful air transporation services into the smaller communities and the isolated or sparsely populated areas of this country and to feed connecting traffic to long-haul carriers. We recognize that some competition between local service carriers and trunk lines is inevitable but we intend not only to minimize such competi tion but to prevent its development to the greatest feasible extent." (Emphasis added.)
Remember that the stated excuse for the large expenditure of tax money that goes into this regulating of airlines is that the regulation will protect the public. Its real purpose, however, is to protect certain airlines at the expense of the public. (Note: Recently, there was some troublesome rate-cutting on the lucrative airline route from California to Hawaii. It was not airline passengers or any other segment of the consuming public which successfully petitioned the CAB to put a stop to this lowering of prices — it was United Airlines.)
The CAB certification for an airline to service profitable routes can be worth millions of dollars to the airline that gets the certification. Of course CAB claims to be guided by "public interest" considerations in granting certifications; but that is obviously not so. How can the public interest be better served by granting a valuable certification to Braniff rather than to American, or to American rather than to Eastern? Actually, in making major economic decisions for airlines, the CAB is guided by the caprice or prejudices of a majority of its own members, or by political pressures that often have overtones of bribery and corruption (or, if you prefer, of selfish personal favoritism) at the highest levels of government. Consider two actual cases.
Northeast Airlines first began operating its New York-to-Florida run under temporary CAB certification. After firmly establishing itself on this, its most lucrative route, Northeast applied for permanent certification. In August 1963, the CAB (in a 3-to-2 decision) denied the permanent certification, ordering Northeast to cease its New York-to-Florida service by November fifteenth. The Kennedy family (Robert Kennedy, as Attorney General; Edward Kennedy, as United States Senator) joined forces with other New England politicians and interests, exerting intense pressure on CAB to give Northeast permanent certification. Thus encouraged by the Kennedys and other powerful figures, Northeast continued its New York-to-Florida run in defiance of CAB orders. Eventually, the pressures for Northeast triumphed. In March 1967, CAB reversed itself and granted permanent certification to Northeast for the East Coast run.
In 1968, Braniff was in competition with other major airlines for CAB certification to extend services over certain Pacific routes. Braniff especially wanted permission to open a route to Hawaii via Mexico City and Acapulco. After extensive hearings, a CAB examiner decided that Braniff should not be certified for any of the Pacific routes under consideration.
This CAB decision affected Troy V. Post — a wealthy Dallas man, who was an old friend of President Lyndon B. Johnson and for years had been a heavy contributor to Johnson's political campaigns. Post had been a major stockholder in the holding company that owned Braniff. More than that, however, he was a partner in a 19-million-dollar hotel in Acapulco and was constructing a six-mile beach front and golf course in that resort city. It was financially important to him to have Braniff offering regular flights into Acapulco from Hawaii, the mainland states, and Mexico City.
Post's old friend Lyndon Johnson had another old friend who, thanks to Johnson, was chairman of the CAB. Johnson and his old friend the CAB chairman overruled the CAB examiner and granted Braniff a permit to open a new route from mainland United States to Hawaii via Mexico City and Acapulco. Whatever satisfaction this may have given to Braniff and to Troy Post was short-lived. In 1969, President Nixon cancelled the CAB certification to Braniff as being "economically unjustified." It was Big Politics as usual.
Meanwhile, just as with railroads and trucking, government regulation is escalating to smother the giant airline interests to which it has granted special privileges. Getting a CAB ruling on proposed price changes for airline tickets takes, on an average, somewhat more than nine months. Getting CAB rulings on such matters as route certification and subsidies takes much longer.
Almost the entire shipping industry is equally victimized. Getting a ruling from the ICC (which regulates railroads, trucks, buses, some barge lines, and other shipping on internal waters) takes an average of eight months, although there have been ICC cases that dragged on for four years before the businesses involved could get rulings clarifying what they could or could not do. The Maritime Commission regulates international oceanic shipping by United States firms. Getting a ruling from the Maritime Commission takes an average of 18 months. The Federal Power Commission (FPC) regulates (among other things) interstate pipeline transportation of natural gas and interstate transmission of electrical power. The FPC is so bogged down in cases that businesses it regulates have had to wait as long as ten years for a final ruling on what they could do.
One small segment of the transportation industry still remains unregulated by the federal government. The consequences of that fact are extremely interesting and significant. Consider:
One of the airlines serving consumers in California is Pacific Southwest Airlines (PSA). Operating solely within that state, PSA is beyond the reach of the federal CAB. Because of a quirk in California law, it can also cut prices without being overruled by the California Public Utility Commission. Never having taken a tax subsidy of any kind (not even mail contracts), PSA is not under the thumb of any government agency. Hence, it operates as a free enterprise.
And what is the result? Competing with three regulated and protected giants — TWA, United, and Western — "little PSA" carries about as many intrastate passengers as all three of them combined. It has an excellent safety record. It provides frequent flights (originating about one thousand flights a week). It uses high-grade equipment. It provides fast, efficient, attractive service that none of the majors match — and at prices which are about one-half of what passengers pay for comparable flights on the East Coast, where there is no unregulated, free-enterprise airline to give service and bring down prices. The majors on the West Coast have complained about PSA's price-cutting, and CAB has allowed them some rate reductions.
The PSA story has a moral. It is that if we would abolish all federal regulatory agencies and allow the forces of free competition to regulate the transportation industry, everyone concerned — the industry, the public, the nation — would be far better off.
CHAPTER 2 - TRUSTBUSTING [BACK TO TOP]
Trustbusting was one name given to the consumerism movement of the late Nineteenth Century. It helped to produce not only the Interstate Commerce Act of 1887, but also the Sherman Antitrust Act, which became law on July 2, 1890. Whereas the Interstate Commerce Act created the Interstate Commerce Commission to regulate the railroad "monopoly," the Sherman Antitrust Act undertook to outlaw all monopolies, prohibiting "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations."
This statute raised impossible problems of interpretation. Without the support or complicity of government, no private business or combination of private businesses could create a monopoly in the sense of prohibiting rival entrepreneurs from entering the same field. Was it illegal restraint of trade for a big business (or a big combination of several businesses) to operate so efficiently that it drove old rivals out of the field and made entry by new rivals difficult? If it was, the law, seeking to prevent restraint of trade, would penalize not only bigness but efficiency, virtually requiring businesses not only to remain small but also not to become too efficient. It would also prohibit the large accumulations of private capital necessary for the industrial development and expansion the nation was then demanding.
Because of this difficulty inherent in the law, the Sherman Antitrust Act for more than 20 years after its enactment did little more than provide an issue for politicians. In 1911, the Supreme Court ruled that business contracts which may be considered somewhat in restraint of trade were not illegal under the Sherman Antitrust Act unless they effected "unreason able" restraint. That muddied rather than clarified the legal problem, but it sharpened the political issue. Politicians interpreted the Supreme Court decision as soft on big trusts and demanded action. In 1912, Presidential candidate Woodrow Wilson promised to protect the people against big trusts; if the people would elect him, he would plug the loopholes in the Sherman Act. The result, in the second year of Wilson's first term, was the Federal Trade Commission Act and the Clayton Act, both of which were enacted in 1914.
The Federal Trade Commission Act created the Federal Trade Commission (FTC), an independent federal agency (patterned after the first such agency, the ICC), composed of five Presidential appointees with power to investigate corporations alleged to be violating the antitrust laws, and to establish and enforce rules for what a majority of the commissioners deemed to be fair competition in interstate business activities. The FTC Act did not clarify the problem of legal interpretation of antitrust laws, but it did simplify enforcement problems. The five FTC commissioners, by majority vote, could make their own definitions of what was fair and what was unfair, what was in restraint of interstate trade and what was not. They could make their own rules for businesses to obey, investigate alleged violations of their own rules, and then (if they found violations) act as a court to prescribe punishment. It was not constitutional, but it was convenient, and it gave every politician who supported it a claim he could lay before his constituents when pleading for their votes: that he had acted to protect them against the rapacious practices of big business.
The Clayton Act of 1914 attempted to outlaw various business practices which Congress considered as "lessening competition" in interstate commerce. The law restricted business mergers - to the extent of prohibiting one company from buying stock in another company, if the purchase caused any "real diminution of competition between the companies." But some of the practices which Congress outlawed as "lessening competition" (price cutting for certain customers, for example) are in fact very competitive. And the Clayton Act did not simplify the legal problems of interpreting and enforcing antitrust laws. In fact, only one major provision of the law was very clear, very specific, and profoundly important. The Act reflected the growing political power of organized unions. Under the Sherman Antitrust Act, certain union practices had been declared monopolistic and, therefore, illegal. The Clayton Act categorically exempted unions from coverage by federal antitrust laws.
Since 1914, Congress has granted many other special exemptions from federal antitrust laws: export businesses, farmers' cooperatives, insurance, shipping, fishing, communications, electric power - to name but a few.
In 1933, Congress passed Franklin D. Roosevelt's National Industrial Recovery Act, creating the National Recovery Administration (NRA). One purpose of this Act was to force all major American businesses into gigantic cartels or trusts under government control (like the big businesses then operating in Nazi Germany). The NRA directly contradicted the announced purposes of all federal antitrust laws. Consequently, President Roosevelt suspended enforcement of the antitrust laws. Resisting efforts to force them into government-controlled trusts, American businessmen challenged the NRA in federal courts. In 1935, the Supreme Court declared the Act unconstitutional. Angered by business opposition to his NRA, Roosevelt retaliated with vigorous prosecution of businesses under the antitrust laws he had previously suspended; and he demanded more such laws.
The major antitrust law passed during Roosevelt's New Deal Administration was the Robinson-Patman Act of 1936. Though broad in scope, this Act was aimed primarily at chain stores; it was intended to keep them from giving the public such low prices that big chains would be "unfair" competition for small stores. Several state governments enacted their own versions of the Robinson-Patman Act. These are generally referred to as state Fair Trade Laws.
Robinson-Patman further added to the welter of complications and contradictions involved in government efforts to regulate business "for the benefit of the public." For if, on the one hand, you are a manufacturer who makes an agreement with competing manufacturers that you will sell a certain product for a certain price to a certain type of distributor, you violate the Sherman Act of 1890, as amended; the Clayton Act of 1914, as amended; and probably the Federal Trade Commission Act of 1914. But on the other hand, if you do not sell that certain product for a certain price to a certain type of distributor, you violate the Robinson-Patman Act of 1936, and probably the Fair Trade Laws of a dozen or more states.
The ostensible purpose of all these laws is to help the public. The assumption behind this purpose is that if merchants are left alone, they will all get together and raise prices and thus overcharge consumers for everything. In practice, however, the laws require merchants to keep prices high. There have been many more cases against business for charging low prices than for charging high prices. In 1950, Congress enacted the Celler-Kefauvex Antimerger Act to broaden, clarify, and strengthen the antimerger provisions of the old Clayton Act. Like all the antitrust laws which preceded it, Celler-Kefauver did not clarify, but further thickened, the nebulous confusion which enshrouds governmental antitrust programs. For the past 20 years (since enactment of the Celler-Kefauver Antimerger Act), the bulk of the federal government's antitrust activity has been focused on controlling business mergers. This is true even though the government has no valid, constitutional authority to prohibit one business firm from buying out another, any more than it has authority to prohibit a dairy farmer from buying his neighbor's cows.
What criteria do federal administrators use to determine that one business merger is good, another bad? Why would the Civil Aeronautics Board determine that United Airlines' acquisition of Capitol Airlines was good and permissible, as it did in 1961, but later determine that a merger of Eastern and American and a merger of TWA and Pan American were bad and impermissible?
In 1963, the FTC and the Department of Justice allowed Gulf Oil Company to purchase Midway Coal Company. In 1966, they permitted Continental Oil Company to buy Consolidation Coal Company (one of the two largest coal producing companies). In 1971, however, they decided that Kennecott Copper Company's purchase of Peabody Coal Company was a violation of the Clayton Act because it "substantially lessened competition in the U.S. coal industry." Why?
At a time when a basic American industry - steel - is being driven to the wall by competition with lower-cost production by foreign mills, the Department of Justice prohibits a merger of Bethlehem Steel and Youngstown Sheet and Tube, thus foreclosing the possibility of greater efficiency and lower prices that the merger could have achieved - and prohibiting also the large pooling of private capital which the American steel industry needs in order to compete with foreign producers, many of whom are subsidized by their governments. Why?
There is no reasonable answer to these questions. A business merger is either good or bad, as the thinking of government administrators makes it so.
Clearly, the federal antitrust statutes are not a body of laws that can be impartially interpreted and universally enforced for all covered businesses. They are discretionary laws, applied or not applied at the discretion of enforcement officials. Discretionary laws are always potentially blackmail or blackjack laws, which breed bribery and corruption. Congress should repeal them all. Stop the federal government's unconstitutional meddling in the marketplace, and no combination of private business interests could ever create a lasting monopoly damaging to the public.
CHAPTER 3 - UNIONS AND LABOR LAWS [BACK TO TOP]
Of the many federal laws which can be characterized as descendants of the old Interstate Commerce Act and the Sherman Antitrust Act, none have done more damage than federal labor laws.
There is irony in this. Two laws enacted in the Nineteenth Century to protect the public against combines of business wealth have helped to bring on other laws that have created other combines of privately controlled wealth (in the big labor unions) far more damaging to society than business ever was or could have been.
In mid-1971, Harry Bridges, an old-line Communist, called out his International Longshore men's and Warehousemen's Union on a strike that lasted until February 19, 1972, closing all U.S. Pacific ports, including those in Hawaii and Alaska. For a while, some goods moved in and out of the United States through Canadian and Mexican ports, but Bridges quickly plugged those loopholes. In testimony before a Congressional committee, he warned the Congress not to interfere with his strike, threatening to call on his "friends in other countries" to tie up American ships in foreign ports.
The strike did enormous economic damage, not just to shipping interests, but to the entire nation: to farmers, laborers, investors, bankers, manufacturers, trucking firms, railroads, and consumers — which means everyone. Bridges was indifferent about it all. He argued that it takes a lot of damage to win union demands. During the strike, President Nixon ordered a wage-price freeze which would make it illegal for businesses to grant the kind of wage increases Bridges was after. Harry Bridges said: "We are telling Uncle Sam either he approves our settlement when we reach it or those lousy ships will stay tied up." How long? "Until all the damn money in the settlement is assured," he said.
No top leader in the Executive branch of government, in the Congress, or in either of the major political parties spoke publicly a word of criticism of Harry Bridges.
In late July 1971, the Bell Telephone Company ended a nationwide strike by granting union demands for a 31 percent pay raise, at a time when inflation was already a harrowing national problem. But a 31 percent raise was not enough for union bosses of New York locals. They kept workers out on strike well into 1972. During that time there were many criminal acts of violence against company property — acts that went unpunished.
Events like those of 1971 and 1972 have been routine for a long time. No business firm, however large, can successfully resist a big union's demands, however unjustified and extortionate. And the problem is growing worse. Nowadays, for example, the federal government forces taxpayers to subsidize strikes by giving food stamps (totalling millions of dollars a year) to people who are "unemployed" because they are on strike.
Having learned that resisting union demands is as futile as it is costly, some of the biggest businesses do not seriously try any more: they just give in to the demands, eventually passing the cost on (as they must) to the general public. In late July 1971, the steel industry avoided a strike that would have damaged the country as much as did Harry Bridges' strike, by granting union demands for a 31 percent pay raise plus an unlimited ceiling on cost-of-living adjustments.
What this means in practical terms is most interesting. The National Commission on Food Marketing, established by the federal government, made a two-year study of the distribution of food from farmer to consumer. In 1966 the Commission released an 11-volume report on its findings. One item will serve to illustrate them: It costs about as much to deliver a loaf of bread from the bakery to the consumer as it does to grow the wheat, mill the flour, and bake the bread — because of labor costs. The editor of that report was James E. Roper, a free-lance writer. Later, Mr. Roper wrote an article on "Why Food Prices Keep Rising," which was published in the January 1973 issue of Reader's Digest. The headnote to the article sums it up rather well:
"Labor unions involved in food distribution have made a fine art of featherbedding, make-work and greed. Until they agree to provide a day's work for a day's pay, housewives will continue to find 'hidden costs' at the checkout counter."
Three powerful unions are involved in food distribution: the Teamsters, whose members haul merchandise to stores; the Retail Clerks International Association, which represents all employees in unionized stores except meat workers; and the Amalgamated Meat Cutters and Butcher Workmen of North America. Each has its own featherbedding and make-work rackets, which it forces upon the various managements involved. One example: Because of a Teamsters' Union requirement that sales commissions be paid to drivers who deliver trailerloads of bread or milk (although the drivers do no selling), one truckdriver in Los Angeles collected, in 16 months, $104,000 in sales commissions, in addition to his regular salary.
Not all union activity is devoted to getting benefits for union members. The essential motivation for union activity is to get dues-paying members for the unions and to keep union bosses secure in their plush and powerful jobs, which grow more plush and more powerful as union membership grows. In Union Power and The Public Interest, by Dr. Emerson P. Schmidt (published in 1973), a man who had worked in the coal fields as a union organizer for the United Mine Workers is quoted as saying: "We had men who went in with a stick of dynamite in one hand and a shotgun in the other. They just terrorized people into paying royalties and into joining the union."
How did unions acquire such power? The federal government gave it to them. The unions have enormous financial resources because the federal government exempts them from paying taxes on their billion-dollar-plus annual income from compulsory membership dues. Unions use their wealth (in violation of the tax code that gives them tax exemption, and in violation of federal labor laws that guarantee their existence) to campaign for politicians who support unions; and they are remarkably effective.
In the 1970 Congressional elections, AFL-CIO's COPE (Committee on Political Education) endorsed 361 candidates for Congress, of whom 219 (61 percent) were elected. As Congressional Quarterly put it: "Organized labor scored no table successes at the polls in November [1970], particularly in connection with Congressional committee assignments dealing with labor questions." In 1972, according to labor columnist Victor Riesel, unions spent $50 million in their "drive to elect George McGovern and a friendly, liberal, controllable Congress."
The unions play politics because it is politics that assures their special privileges. The basic federal labor law is the National Labor Relations Act of 1935. It was amended by the Taft- Hartley Act of 1947, and by the Landrum-Grif fin Act of 1959. As administered by the National Labor Relations Board (NLRB), with the support of federal courts, these laws have given unions monopolistic control over a significant segment of the labor force in the United States. Without such laws, compulsory unionism could not exist.
Even with the special government-granted privileges and power it has enjoyed for 38 years, compulsory unionism has failed to achieve its goal of capturing the total labor force of the United States. The majority of workers in this country are still not union members. To make progress in recruiting new members — or even to hold those they have — the unions must use coercive tactics sanctioned by federal law. Union bosses tacitly admit as much. This is why they oppose Right-to-Work laws which allow workers the freedom to join, or not to join, a union as they please.
There are many cases which show the pro-union bias, and the anti-workingman and anti-business bias, of federal labor laws. The classic, perhaps, is the Kohier case.
In the early 1950's, Walter Reuther (now deceased, then head of United Auto Workers) spent many months and much money trying to organize the Kohler Company of Kohler, Wisconsin, by persuading a majority of Kohler employees to join the union. Some joined, but most refused. Reuther demanded that management sign a contract that would force the employees to join his union. Management refused. It did not discriminate against employees who freely chose to join the union, but it would not compel others to join. On April 5, 1954, Reuther's organizers started a strike to bludgeon the company into forcing union membership on its employees. The union massed imported pickets at the gates of the plant, and instituted a train of violence that resulted in murder, vandalism, arson, boycott, and terrorism against innocent people. The violence and terror were not confined to the plant and its immediate environs. They engulfed the whole town and the surrounding community.
On August 26, 1960, the NLRB ruled against Kohler and in favor of the United Auto Workers on most issues in the six-year-old strike, ordering Kohler to reinstate nearly all strikers. Subsequently, a U.S. Court of Appeals upheld the 1960 NLRB ruling, but asked the Board to review the cases of some striking workers who had not been rehired. On September 29, 1964, the NLRB ordered Kohler to offer jobs, with payment of wages back to January 1962, to 57 strikers not covered by the 1960 NLRB ruling — even though they had been guilty of violence and intimidation against non-striking employees.
On December 17, 1965, Kohler Company officials accepted a one-year contract with the union, agreeing to pay $3 million in back wages to strikers and to contribute $1.5 million to restore their pension rights. All told (according to estimates of UAW union officials), the strike cost Kohler between $25 million and $35 million.
Union bosses used to call the Taft-Hartley Act "the slave labor law." Maybe they were right.
CHAPTER 4 - THE FOURTH BRANCH: REGULATION [BACK TO TOP]
Judged by their accomplishments, the two major Nineteenth Century laws to protect the public against business — the Interstate Commerce Act of 1887 and the Sherman Antitrust Act of 1890 — have been failures. They have not achieved lower prices and better business services for the public, but have made matters worse. Judged by their impact on constitutional government in the United States, the two old laws can be characterized as calamities.
Constitutional authority for both laws rests on one provision of the Constitution giving Congress power to regulate interstate commerce. That provision was intended to keep state governments from erecting barriers (tariffs, quotas, embargoes, and so on) to the free flow of trade across state lines. It was not intended to empower the federal government to dominate such trade or to interfere with private business activities. But Presidents, Congresses, and federal courts have stretched all meaning out of the phrase interstate commerce. With the Interstate Commerce Act of 1887 and the Sherman Act of 1890 as basic authorization for hundreds of other laws, the federal government now exercises autocratic control over myriad economic activities.
Since President Franklin D. Roosevelt succeeded in packing the U.S. Supreme Court with New Deal justices, the Court in a series of rulings (beginning with National Labor Relations Board v. Jones-Laughlin Steel Company, 1937) has held that Congress can do anything it pleases to regulate commerce in the United States — even local trade, if Congress alleges that it will affect interstate commerce. Where matters of federal regulation of commerce are concerned, the Tenth Amendment (which prohibits the federal government from exercising powers not granted to it by the Constitution) has been ruled by the Supreme Court to be mere rhetoric. Elevator operators have been officially declared to be engaged in interstate commerce because they work in buildings that house firms which do business across state lines. Farmers who raise grain to feed their own livestock are said to be engaged in interstate commerce because the grain they raise and feed on their farms may prevent an equivalent amount of grain from moving in interstate commerce.
Moreover, the Interstate Commerce Act of 1887 has been the progenitor of a system of "administrative law" that violates almost every fundamental principle of liberty written into the U.S. Constitution and Bill of Rights. As previously mentioned, the Act created the Interstate Commerce Commission as an independent federal agency to administer its provisions. The agency is called independent because the commissioners who run it are not controlled by anyone. They operate under grants of power made by Congress. They are appointed by the President, but for fixed terms that always exceed the elected term of the President who appoints them. Consequently, it is rare for all members of the Commission to be appointees of one President. This not only makes the Interstate Commerce Commission independent of the President, but also dilutes an incumbent President's accountability to the public for what the Commission does. And of course, because they are not elected, the commissioners are wholly independent of the public.
For 27 years (1887 to 1914), the Interstate Commerce Commission was the only federal independent administrative agency in existence. In 1914, Congress created another one, the Federal Trade Commission, modeled after the ICC. Today we have many such federal agencies. There are also hundreds of federal regulatory or administrative agencies which are not called independent, because they are under the jurisdiction of some executive department (Agriculture, Commerce, Defense, Transportation, HEW, and so on), but their mode of operation is essentially the same as that of the independent agencies. No one really knows how many federal regulatory agencies there are. The number is large.
The Constitution established a federal government of three branches, Legislative, Executive, and Judicial. One fundamental principle guiding and motivating the Founding Fathers who wrote our Constitution was that concentrations of political power are fatal to liberty. Time and again, delegates to the Constitutional Convention of 1787 warned one another that to form a government in which it was possible ever to combine the legislative, executive, and judicial functions in one branch would be to create a more oppressive governmental system than the one the American colonies had rebelled against.
In the regulating agencies all of these powers are now illegally merged. These agencies constitute an unconstitutional fourth branch of the federal government.
Congress makes broad grants of power to the administrative agencies, enabling them to make whatever rules and regulations they may deem necessary to carry out the purposes of the laws they administer and enforce. Their administrative rules and regulations have the force of law; and the administrators can change this "law" any time they wish, without consulting anyone. All they have to do is promulgate a new rule or regulation and publish it in the Federal Register. Thirty days after publication, it becomes a binding "law."
The citizens who are bound by this kind of "administrative law" frequently cannot find out what it is. The Federal Register is both difficult to obtain and expensive. Administrative laws published in the Register are also hard to understand, unless you are a trained and experienced lawyer. Even if you could understand them, you would have to spend most of your time reading the Federal Register just to keep up with the thousands of new and changed administrative laws published in it. The complexity of the administrative laws that fill the Register is so vast and contradictory that no one knows what is required of the citizens who are bound by them. This body of law is superimposed on the normal complex of laws enacted by Congress; and it controls most economic activity in the United States.
What happens when a taxpayer runs afoul of an administrative law? The agency that exercised legislative power in making the law exercises executive power to investigate violations of it and to enforce it. When investigating alleged violations of its own regulations, a federal regulatory agency is not bound by constitutional provisions that restrict the police in their investigations under statutory law. Inspectors or examiners for a regulatory agency may enter private premises and make searches without specifying what they are looking for and with out search warrants. If the taxpayer resists, the inspectors do not obtain a valid search warrant; rather, they seek a court order prohibiting interference with the inspectors. Then, if the taxpayer resists an illegal search — one in violation of the Fourth Amendment — he can be jailed without a trial for contempt of court. After exercising Executive power to investigate violations of its own administrative law, the regulatory agency exercises Judicial power to make findings of guilt and to assess penalties — without due process of law, in violation of the Fifth Amendment; and without a trial by jury, in violation of the Sixth Amendment.
What if the taxpayer feels he has been unjustly treated and wants to appeal the decision made against him by a regulatory agency? He cannot appeal to the federal courts until he has exhausted all "administrative remedies." This means that his first appeal must be made to some arm of the same agency that made the law and found him guilty under it. Generally, the agency upholds itself on this appeal — and the taxpayer loses.
During all these proceedings, the taxpayers time and energies are being diverted from the pursuits by which he makes a living, while the government employees arrayed against him are doing the nine-to-five jobs which provide them with incomes. Moreover, the taxpayer pays his own legal and other expenses directly, while indirectly (through taxes) helping to pay the expenses and salaries of those who are fighting him with the enormous resources of the federal government. Even among those businessmen who have the courage to try, there are very few who have the money or the time necessary to fight their cases all the way through the labyrinth of administrative bureaucracy to get them into the regular courts. Those few who do often go into court with a heavy prejudice and presumption of guilt against them because they have already been found guilty by several administrative tribunals.
Lowell Mason served on the Federal Trade Commission for 11 years (1945-1956). Throughout that time, his was the voice of dissent. After his retirement from the FTC, Mr. Mason collected his dissents (and some of his concurring opinions) into a volume called The Language of Dissent (published in 1959). Concerning his 11-year tenure as a Federal Trade Commissioner, Mason says:
A sense of loneliness at the Commission encouraged me to get out and speak before as many trade associations as invited me ....
As an administrator of two antitrust laws diametrically opposed to each other, it was not difficult for me to accuse everybody at a trade convention with being some kind of a lawbreaker. Either they were all charging everyone the same price, a circumstance indicating a violation of the Sherman Act, or they were not charging everyone the same price, a circumstance indicating a violation of the Robinson-Patman Act.
Most businessmen took this kind of jibing in good grace. But at one convention, a man interrupted my speech to say the Commission had recently sued him for doing both. To which I replied:
"Then in that event, how can you win? We shall probably find you guilty of one or the other!"
His retort: "You damn fools found me guilty of both...."
In more serious vein, Lowell Mason writes:
The fight against tyranny in America is dull and monotonous in these years of grace of the mid-Twentieth Century. It consists almost entirely of a lot of petty recognitions of the petty encroachments, arrogances, and cruelties of bureaucracy that lie hidden under the government's sweet promise of security.
This is the modern tyranny of the total state — Western style. It adds up in the end to something considerably more pervasive than the gibbet or the stake of medieval times, but it is much less spectacular than the modern Eastern tyrannies of Katyn Forest or Budapest....
It is not communists or even socialists who can successfully advance tyrannical precedents — they are too unpopular. The real work toward ultimate bureaucratic control is done by innocent zealots of an entirely different hue.
The most effective way peaceful totalitarianism can be achieved in the United States is through complete government control of the common everyday acts of all people — and I do not mean by putting everybody on the government payroll. What field of peacetime activity concerns nearly everybody? Business, trade, and commerce....
Today, a series of administrative court decisions are being quietly built up in the world of commerce which may provide future precedents for tyranny in any phase of a man's life.
Even though administrative courts invade fundamental rights of citizens in a manner no real court would tolerate, when real courts are called upon to review such actions, they merely shrug their judicial shoulders and look the other way....
Actually, there is evolving in the United States the same kind of jurisprudence that exists in the Communist-controlled countries, especially during the period when Communists are solidifying their control. At that stage in particular, Communist governments are relatively tolerant with individuals who commit crimes of violence and moral depravity; but they brutally punish economic and political offenses. It is not common criminals who are sent to slave camps in Siberia, but persons accused of disobeying the economic and political commands of the Communist State.
Similarly, in the United States, as government controls fashion our economy into the likeness of Communism, businessmen who violate the economic commands of regulatory agencies are considered more dangerous than criminals. Our courts and other branches of government are becoming so permissive about crime and so concerned about the rights of criminals that the right of society to be protected is sometimes ignored; but businessmen accused of economic offenses are punished without due process of law.
Lowell Mason makes this point, and illustrates it by telling of a deputy fire marshal in Ohio who sentenced a man to jail after holding a secret inquisitorial proceeding. The defendant was not even allowed to have his own attorney present. The Supreme Court upheld the sentence because the trial "was not a criminal trial"; it was "an administrative investigation of incidents damaging to the economy."
CHAPTER 5 - HARASSMENT: THE OSHA SYNDROME [BACK TO TOP]
The same kind of anti-business animus that inspired the federal labor laws and created the NLRB also produced the occupational Safety and Health Act of 1970 and its creature, OSHA — the Occupational Safety and Health Administration.
An original proponent of OSHA was Ralph Nader, who has been quoted as saying that "what is needed is socialism or communism of one sort or another." In the June 15, 1968 issue of The New Republic, there is an article by Ralph Nader and Jerome Gordon arguing for "a comprehensive federal program designed to end colossal inaction and penury by our society in dealing with the following conditions: Every working day 55 workers die, 8500 are disabled and 27,200 are injured....
In 1968, President Lyndon Johnson proposed an occupational health and safety bill giving the Secretary of Labor authority to set and enforce safety standards for American industry. In 1969, President Nixon asked Congress to establish a National Occupational Safety and Health Board with power to set standards for protecting most of the nation's workers. In 1970, Nader and Nixon were joined by the most powerful lobby in America - the combined forces of monopolistic unionism.
During House debate on the OSHA bill (November 23 and 24, 1970), Representative Dominick V. Daniels (D.-N.J.) said: "Every day we postpone passage means 55 more American workers will die; 8500 will be disabled, and 27,200 will be injured." Compare Daniels' statement in November 1970 with that of Ralph Nader and Jerome Gordon in June 1968.
This was the core and the quintessence of all arguments ever made, by anyone, for the OSHA legislation. There were some variations on the theme, and the statistics were sometimes juggled around a bit; but, in essence, the demand for OSHA rested on one assertion: We must have federal legislation to stop the ghastly slaughter of American workers.
The promise was that federal job-safety legislation would eliminate deaths and injuries being suffered by employees of business. The implication of this promise was that if businesses had done, without federal legislation, all that the legislation would require them to do, there would have been no work-caused illnesses and accidents. The job-safety legislation had no provisions requiring safe behavior by employees or placing any obligation for safety upon them. Obviously, then, the total blame for all deaths and injuries suffered by employees of business was placed exclusively on businessmen.
There is no reason to believe that businessmen, as a group, have less human compassion and social conscience than any other group, including consumer advocates, union bosses, and politicians. Moreover, businessmen have profit-motivated reasons for fostering on-the-job safety. Work-caused injuries and illnesses are costly.
Judged by any objective standard, the on-the-job safety record of American industry is good — and has been improving yearly. Between 1912 and 1971, according to the National Safety Council's Accident Facts, 1972 edition, accidental work deaths per 100,000 population were reduced 67 percent, from 21 to 7. In 1912, an estimated 18,000 to 21,000 workers' lives were lost. In 1971 there were 14,200 work deaths in a work force double in size and producing over seven times as much as that of 1912.
The Occupational Safety and Health Act of 1970 created OSHA, within the Labor Department, as its administrative agency. The Secretary of Labor was authorized to set, through OSHA, "mandatory occupational safety and health standards applicable to businesses affecting interstate commerce." The only exclusions from the law's coverage are government agencies and employers covered by other federal safety-and-health laws (such as the Federal Coal Mine Health and Safety Act of 1969 and the Atomic Energy Act of 1954). By official Labor Department interpretation, the phrase "businesses affecting interstate commerce," as used in the OSHA statute, can mean every person, corporation, partnership, proprietorship, or other entity which hires one or more employees anywhere in the United States, or on the outer continental shelf, or in the nation's territories, possessions, and protectorates. At least 13.5 million employers fall into this broad category. It covers everything.
The bureaucrats of OSHA may never contrive to extend their jurisdiction actively to the limit of the agency's immense potential, but they are trying. In February 1972, when OSHA had just completed its ninth month of operations, the Assistant Secretary of Labor then in charge of the organization said OSHA was endeavoring "to establish . . . [its] presence in the field as broadly as possible." He said this was being accomplished by the process OSHA was using in selecting businesses to investigate, since, manifestly, it could not investigate all businesses. He explained the selecting process as making "a random cross section of all kinds of establish ments — in all kinds of industries and of all sizes from the largest to the smallest — on as broad a geographical basis as possible."
In its first full fiscal year of operation, OSHA cited employers for 102,860 violations — an average of 8,571 a month. In one month of 1973 (March), OSHA issued more than 18,000 citations.
In the legal enforcement of normal laws, police are not allowed to make a random selection of a man's name, and then raid his place, without a warrant, on the chance that they may find evidence of some violation of some law. Before police can make a legal search, they must get a warrant. Before they can get a warrant, they must show a judge or other magistrate "probable cause" for issuing the warrant (i.e., must present information indicating that the man whose premises are to be searched has committed a specific crime, and must specify the particular evidence they expect to find).
In the enforcement of administrative law, no court orders, warrants, warnings, or administrative notices of intent are required — not even any information about the victim, except that he is an employer. OSHA compliance officers are given unlimited authority "to enter without delay and at reasonable times any ... workplace or environment where work is performed by an employee of an employer; and to inspect and investigate during regular working hours and at other reasonable times."
The compliance officer decides what is "reasonable." The OSHA compliance officers can — and, on occasion, do — shut down a small business while an inspection is being made, although OSHA's own Compliance Operations Manual provides that inspections "shall be such as to preclude unreasonable disruption of the operations of the employer's establishment."
Making sudden raids to catch employers by surprise and find them in technical violation of some regulation is a primary OSHA enforcement tactic — authorized, in fact, by the law, which provides penalties of a fine of $1000 and a six-month jail sentence against any person who (without OSHA permission) gives an employer advance notice of an inspection.
The consequences of sudden raids are often painful to employers — like Bill Riddle, who owns the Ace Cabinet Company (Yuma, Arizona), and has four employees. Frayed cords on power tools are continuing hazards in his shop. Therefore, Mr. Riddle (who says, "It would be stupid to hurt a man who is making a living for me") closely watches the tools and changes power cords promptly when needed. In September 1972, an OSHA compliance officer made a surprise call at the Ace Cabinet Company while Mr. Riddle was changing cords on power tools. Riddle had just finished two tools and was about to start on a third, which he showed to the inspector, explaining what he was doing.
The officer cited Riddle for a violation because the tool still had a frayed cord when the officer saw it. That was just the beginning for Riddle. He was ordered to ground an electric box in his shop, but an electrical contractor subsequently told him that grounding the box would be dangerous. Riddle had two expensive saws used for specialized work in cabinet making. The saws were designed without safety guards, and cannot do the work for which they were designed if safety guards are added. He was ordered by OSHA to install safety guards any way.
It is fixed OSHA policy to punish employers for employee actions which employers could not possibly prevent. One instance: An employee of the Atlas Roofing Company, working on a building in North Carolina, deliberately removed a safety guard covering a hole in the roof and committed suicide by jumping into the hole. Incredibly, OSHA fined Atlas $500 because the covering was not in place.
When asked why employees have no responsibility for safety under the OSHA statute and under OSHA regulations, one OSHA official (Edward E. Estkowski, administrator of OSHA Region V, Chicago) replied that management wants responsibility for the health and safety of its own employees, and that the federal government does not want to intervene in labor- management relations.
Employers are penalized for violating OSHA requirements which contribute nothing to the safety or health of employees — and even for violating OSHA requirements which make matters worse for employees. Some illustrations:
Such outrages are, in fact, common. Many OSHA actions against employers reflect a vengeful attitude toward businessmen, while others seem to reflect merely the exasperating silliness of bureaucracy.
The Occupational Safety and Health Administration formally came into existence on April 28, 1971. It hastily compiled some 100,000 safety standards to impose on employers, by incorporating hundreds of "consensus standards" into its own code. "Consensus standards" is jargon, meaning standards that were already in use by various industries; guidelines that had been recommended by federal agencies, trade associations, and union groups; standards required by older federal laws applying to specific industrial activity, and so on.
These "consensus standards" were adopted without any review to determine what they required, how they should be applied, and whether they were adequate or practical. Many of them contradict each other; some are so complex that compliance is impossible; many are patently absurd; some are obsolete. On May 29, 1971, OSHA published them as a 357,000-word set of rules and regulations, which filled 250 pages in the Federal Register, and which 30 days after their publication became binding as law on American employers. In June 1972, OSHA issued a booklet containing 17 additional Federal Register pages (about 25,000 words) of regulations which had been issued since May 29, 1971.
This adds up to 380,000 words of rules and regulations published by OSHA during the first 11 months of its operation — in addition to booklets and leaflets containing supplementary instructions on record keeping, notice posting, and what not. And there is more. In addition to the regulations it published, OSHA "referenced in" many others — that is, made reference in footnotes to safety codes and regulations not published by OSHA that OSHA enforces on employers. An official of the National Small Business Association estimates that it would cost an employer more than $300 just to buy all the documents needed (in addition to OSHA-published materials) for a complete set of OSHA enforced regulations. If all 13.5 million employers actually spent $300 each for all the documents they need to find out what OSHA requires of them, the total cost to them would be more than $4 billion.
There is still more. Although primary enforcement responsibility was given to OSHA in the Department of Labor, NIOSH in the Department of Health, Education and Welfare was given responsibility for research, investigation, and experimentation to develop new safety-and-health standards and to devise employee safety-and-health programs. NIOSH is an acronym for the National Institute of Occupational Safety and Health, which the OSHA statute created. The reporting and record keeping that NIOSH requires of employers are in addition to those devised by OSHA. A state may set up its own occupational safety-and-health program. If the program meets OSHA approval, OSHA will withdraw its inspectors from the state, but will still require of employers within the state all the reporting it requires in other states. The state agency must also make frequent reports to OSHA and will be subject to "disapproval" at any time. Both OSHA and NIOSH can make grants to states for experimentation and research concerning safety and health, and OSHA can make grants to pay for 90 percent of the cost of administering and enforcing OSHA-approved state programs.
In February 1972, George C. Guenther, then OSHA director, warned that every American businessman "ought to be familiarizing himself with his responsibilities under the act." To do that, the 13.5 million businessmen potentially covered by the Act would have to spend more than 350 million man-hours of time just reading the rules and regulations that OSHA itself published during its first year.
Of course, OSHA officials generally sneer at such startling statistics. They assert that a businessman obviously needs only to refer to the OSHA standards and rules that apply to his particular industry. In this case, the obvious is not obvious. If single copies of each were put in one pile, the rules, warnings, notices, posters, explanations, clarifications, and other documents issued by OSHA during its first year would make a stack 17 feet high. This material was published without indices or other aids to make it usable as handy reference. Employers are given no specific notices, guides, or instructions about their responsibilities. They must read it all to determine (if they can) what applies to them. If an employer does not take this precaution, an unexpected inspection could find him in violation of requirements he knows nothing about. How, except by reading volumes of OSHA safety regulations, can a television repairman, with one hired helper, know that the clothes hangers and door latches in his toilet must meet prescribed national standards, or find out what those standards are?
If an employer asks OSHA for guidance, he only invites trouble. One small businessman who asked OSHA for help in determining what he was supposed to do to comply with OSHA regulations got this reply: "If a compliance officer visits your place of employment, he is obligated to conduct a complete walk-around inspection. If he finds any alleged violations it could subject you to assessment of monetary penalties. If you still desire a visit under these conditions, please let us know."
American Opinion contributing editor Alan Stang discussed this sticky point with Howard J. Schulte, the OSHA regional administrator in Denver. Stang reports: "I asked how a business man can ask OSHA for advice, in view of the fact that if he tells OSHA his problem, he may very well be fined. Schulte replied that the employer can 'call up anonymously.' So it is easy to imagine businessmen across the country, wearing dark glasses and with their hat brims pulled low, calling OSHA from coin telephones with handkerchiefs over the mouthpiece."
Obviously, as OSHA officials might say, 13.5 million American employers have not spent, and will not spend, more than 350 million man hours reading all of OSHA's regulations. Consequently, a big percentage of OSHA penalties against employers are for failure to obey OSHA regulations whose existence had never been suspected by the employers.
The Agnew Lumber Company in Grants Pass, Oregon, was cited for 13 violations of OSHA regulations concerning ladders. For years, Agnew had been using ladders with rungs 14 inches apart; but OSHA says the rungs should be 12 inches apart. Guard rails in the Agnew plant were 36 inches high, as required by Oregon state regulations, and by OSHA itself in some of its regulations; but an OSHA inspector cited Agnew for violations because he found four places in the plant where, he claimed, OSHA regulations required a 42-inch guard rail. Agnew was cited for two "serious violations" involving guards around flat chains, although the guards had been examined and approved by Oregon state inspectors and by Agnew's insurance carrier.
In all, Agnew was cited for 37 violations. Don Deardorf, production manager at Agnew, says that when any plywood plant is operating there will be some veneer on the floor somewhere, or a millwright will occasionally lay a torch down momentarily without turning it off; but these are violations of OSHA regulations. The only way the management of a plywood plant can avoid violations of OSHA rules is to shut the plant down.
In fact, with the limitless powers Congress has granted OSHA, with the complex of administrative law OSHA has created, and with the unconstitutional enforcement techniques OSHA uses, OSHA officials could harass all American private businesses out of existence.
Consider, for example, OSHA's power over the construction industry. There is no possibility that OSHA will improve the safety record of this industry; but OSHA will increase construction costs. Authoritative estimates of how much range from 10 percent to 35 percent. This means that useless OSHA operations will add at least $10 billion a year to what American consumers must pay for homes, apartments, highways, streets, subways, office buildings, and so on.
As one set of standards for this industry, OSHA adopted the safety provisions of the 1971 National Electric Code — making it applicable not only to buildings constructed after the code was adopted, but also to existing buildings. This means that OSHA could require the rewiring of practically every building in the United States constructed prior to 1971, even though the building complied with applicable local electric codes at the time it was constructed — and even though the codes it complied with may be more sensible and provide more safety than the code which OSHA imposes.
Similarly, other building-safety guidelines, blanketed into OSHA rules, could require all stairwells to be remodeled, all heating and ventilating systems to be revamped or replaced, in buildings throughout the United States and its territories.
In mid-1973, OSHA was preparing to impose on employers a new set of "workplace standards" devised and submitted in July 1972 by NIOSH. The standards involve exposure of workers to heat, noise, and "potential toxic substances." A real mare's-nest is here in the making. Medical science does not know and cannot find out how much is too much with regard to many of these factors. "Norms" are meaningless, because no human being is a norm. Each is an individual. What would make one man suffer might be pleasant to another.
Union officials (some of whom gleefully translate the OSHA acronym, "Our Savior Has Arrived") are angrily impatient for OSHA to adopt all of NIOSH's new workplace standards. The standards will provide an almost limitless number of contentious issues for unions to use as clubs to bludgeon management into concessions on matters that have nothing to do with the health and safety of employees. L.S. Beliczky, an official of United Rubber, Cork, Linoleum and Plastic Workers of America, is especially indignant about OSHA delay in fully implementing the new NIOSH standards. Mr. Beliczky says his union will not let management rest. If OSHA does not set the standards the union wants, the union will impose them in its next contract negotations with management.
Mr. Beliczky is particularly interested in heat-stress. He tells about a heat-stress standard one of his locals has already imposed on plant management, indicating that this is the kind of standard he wants OSHA to force on all employers. It is a simple standard: "If the outdoor...temperature exceeds 90 degrees, all shifts will report for work and start work. But, if a senior union official thinks it is uncomfortable, management must conduct a vote of employees by secret ballot on whether or not the plant should shut down." Under "show-up" rules which unions usually impose, management must pay a full day's wages to any employee who shows up on a job but does not work because of weather. The heat-stress standards which NIOSH has proposed are not quite as punitive against business as some union bosses want, but they are punitive. If adopted in their present form and fully enforced, they could close down for several months out of the year, or in every area of the nation where summers are long and hot, all construction, farm-and-ranch operations, and all other activity involving out-of-doors work by hired employees.
Management generally does everything feasible to make employees comfortable in uncomfortable working environments and to protect their health. Management provides respirators for employees exposed to harmful dust, earplugs for those exposed to loud noise, fans to blow cool air on certain employees in unavoidably hot places. By such means, most businesses are already in compliance with some of the new NIOSH standards. But the OSHA statute has created a situation which threatens chaotic personnel difficulties and incalculable costs for management. An obscure provision of the law says that an employee may not be forced to wear a respirator if a doctor says he cannot "function normally" while wearing such a device. In that case, the employee "shall be rotated to another job or given the opportunity to transfer to a different position whose duties he is able to perform." The same provision could be enforced with regard to workers who cannot "function normally" while wearing ear plugs, or to those who cannot "function normally" in a hot place with cold air blowing on them. It is even conceivable that some employees could get a medical certification to keep them from wearing hard hats, clumsy safety shoes, goggles, or gloves that are hot and heavy. Under the OSHA statute, employees with long seniority could get transfers to easier, more comfortable work normally paying less than their old jobs, because it is more comfortable and requires less experience. They would replace lower-paid employees in the easier jobs, but they would have to be paid the same high wages as before.
An employer cited for an OSHA violation has 15 working days to give "notice of intent" to contest the citation. If he does not meet this deadline, the citation and the assessment of penalty "shall be deemed a final order...and not subject to review by any court or agency." If the employer files notice within the time limit, he may formally appeal for a hearing by the Occupational Safety and Health Review Commission, which was created by the OSHA statute as an administrative appellate court. The Review Commission sometimes displays hostility toward an employer who questions the fairness of OSHA citations.
McNeill Stokes, general counsel for the American Subcontractors Association, has had considerable experience with OSHA cases against employers. On September 14, 1972, Mr. Stokes testified before a House Select Subcommittee, saying:
There is a chilling effect on the employer's right to contest, because the OSHA Review Commission has taken the position that it can increase an employer's penalty if he chooses to contest. An election to appeal to a court may be a substantial risk for the employer in that a $1,000 per day penalty may accrue for each day that he is appealing .
One of the cases which our firm is handling involves Beall Construction Company of Lincoln, Nebraska. The company received a $244 penalty for an alleged violation.
John Beall did not contest the fine because he felt that it was not economically practical for him to hire a lawyer to appeal the citation and proposed penalty through expensive and burden some appeals.
Because he did not contest the citation, the basic fine and abatement order set by the inspector in the field became a final adjudication and was not subject to further review by any agency or court.
John Beall then wrote a letter to Senator Carl T. Curtis (Nebraska) supporting his proposed amendments to the Occupational Safety and Health Act.
Several months later the area director of the Occupational Safety and Health Administration in Omaha, Nebraska, spoke to Hugh Beall (also of Beall Construction Company, and John Beall's broiler) on the telephone accusing him of writing a letter criticizing the act to Senator Curtis.
Approximately three days later, federal inspectors reinspected the worksite and alleged that Beall had not abated the safety violations.
Beall was fined $750 per day for each day that the safety violation had not been corrected, which amounted to $31,744, which is a high price to pay for exercising a citizen's constitutional right to communicate with his elected representatives.
Beall must now take the offense to prove himself innocent and contest the daily penalties. As a small businessman, he finds it economically depressing since the fine is more than double his annual income.
McNeill Stokes also told about the case against Fred Home's Plumbing and Heating Company, which employs ten persons and has an excellent safety program and record. On a construction job in Atlanta, some of Mr. Home's employees (without his knowledge, in disobedience to his specific instructions, in defiance of the warnings of other employees working near by, and in contradiction of established practice which they had themselves observed on previous similar jobs) refused to construct wood shoring to protect themselves against cave-ins in a ditch where they were working. The ditch embankment caved in, killing one of the employees. As a result, OSHA fined Home $600 for failure to have proper shoring in place. Home appealed the fine. As attorney who handled this case for Mr. Home, McNeill Stokes says:
"When we contested the citation and...penalty, the [OSHA] inspectors issued an additional $1800 in penalties against the employer because this employer had the gall to contest the citation and proposed penalties for an offense of which he was innocent."
Occasionally the "supreme court" of the judicial branch of OSHA (that is, the Review Commission) will rebuke a "lower court" of OSHA for trying to show a little leniency toward business. A compliance officer found a company in "serious violation" of an OSHA safety rule. Reviewing the case, an administrative-law judge classified the violation as "other than serious," because the employer had a good safety record, because only one worker was ever exposed to the cited hazard, and because it was improbable that he would ever suffer a serious injury because of the hazard. In May 1973, the Review Commission reversed the judge, holding that limited exposure and improbability of serious injury were no defense, and ruling that an infraction of an OSHA safety rule must be judged according to the severity of any injury that might result.
The stated statutory purpose of OSHA is to ease the economic burden imposed on commerce by work-caused injuries and illnesses. But OSHA will never achieve any significant reduction in work-caused injuries and illnesses unless it closes down a significant portion of American industry; and the economic burdens OSHA itself imposes on commerce are greater than those it is supposed to ease.
Yet, the Congress certainly was aware of the load it was putting on American employers when it passed OSHA. One section of the Act says: "Any information obtained...under this Act shall be obtained with a minimum burden upon employers, especially those operating small businesses." Another section authorizes Small Business Administration loans to employers "likely to suffer substantial economic injury" from making costly changes to comply with OSHA orders.
James D. McClary, president of the Associated General Contractors (a trade association representing major firms in the building industry), admits that OSHA rules and enforcement procedures are burdensome, if not vicious, but says: "We can't buck the objectives of the safety law. We're for one." He means that most big builders are afraid — afraid of incurring the wrath and invoking the vengeance of powerful federal and union officials; afraid of the OSHAcrats themselves; afraid of getting a bad public image for opposing the "objectives" of a law which has been fraudulently sold as a means of providing safety for workers.
This attitude of going along to get along seems to characterize most of the trade associations representing employers. Employers find themselves trapped, confused, or scared by OSHA. They turn to their trade association for help. By way of "serving" its members, the association tells them they must learn to live with OSHA, offers them (for a special price, usually) digests of applicable OSHA regulations, and promises to keep them informed of any new regulations. The association may lobby with Members of Congress to get the statute reformed a bit, but OSHA's harassments make the association more important to its business members — the association executives like that, and will go along for their own advantage.
Businessmen must, of course, do their best to comply with OSHA as long as it is in force, but they should never compromise with it. And they must recognize that OSHA cannot be reformed into something tolerable. Even if it were not harming business, it would not be acceptable, because it is not constitutional. Congress created OSHA and feeds it with our tax money, to prowl the land and prey on us. Congress should be forced to abolish it.
CHAPTER 6 - THE FDA CON GAME [BACK TO TOP]
The Food and Drug Administration is a relatively minor regulatory agency, but it exercises major influence in many large industries. In general, its activities (especially in recent years) reflect its anti-business origins.
Government regulation of food and drugs began with the Pure Food and Drug Act of 1906, establishing federal controls over the manufacture of food and drugs, in federal territories and districts only. The bill was not intended to give government control over the food and drug industries, but to prohibit the production and distribution of adulterated or misbranded foods and drugs in, and from, areas over which the federal government has constitutional jurisdiction. This law went as far as the federal government can constitutionally go "to regulate commerce" in food and drugs.
In 1938, however, the New Deal Congress enacted the federal Food, Drug, and Cosmetic Act, creating the Food and Drug Administration (FDA) to establish and enforce standards of identity and quality for food, drugs, and cosmetics produced anywhere in the United States. During the next two decades there were sporadic, but unsuccessful, efforts to tighten government controls. A determined drive began in the late 1950's.
In September 1959, John Lear, science editor of the "Liberal" Saturday Review of Literature, demanded a Congressional investigation of drug marketing, alleging that "rich and powerful corporations" were exploiting "the results of new scientific research discoveries." Lear recommended the publication Medical Letter as a competent authority in the field of drug marketing. The managing director of Medical Letter was Arthur Kallett, an identified Communist.
In December 1959, the Senate Judiciary Antitrust and Monopoly Subcommittee (under the chairmanship of Estes Kefauver) began holding televised hearings investigating the drug industry.
Kefauver's star witness against the industry was Dr. Louis Lasagna, who was on the advisory board of Medical Letter. Lasagna had formerly been a special medical advisor for Consumers Union, which Arthur Kallett had founded in the 1920's and which had been cited years before the hearings as a Communist front. Dr. John M. Blair was chief economist of the Kefauver Subcommittee staff. Dr. Blair was the author of a book (Seeds of Destruction, 1938) asserting that private capitalism is doomed because it contains fundamental weaknesses which are the seeds of its own destruction. Dr. J.D. Glover of Harvard University accused Dr. Blair of "pettifoggery and efforts, not to analyze the facts, but to handle the data in such a way as to 'make a case' against big business." Senator John Marshall Butler (R.-Md.), after reviewing all hearings and reports by the Kefauver Subcommittee, said he could not find "one iota of evidence" that the Subcommittee had "made any serious attempt" to do anything except air the economic theories of Dr. Blair.
In fact, neither in the Kefauver Subcommittee hearings nor in all the other propaganda for new controls on the drug industry was proof ever presented of a single instance of harm to the health of the American people resulting from the absence of the kind of controls being proposed. Little effort was made to show that a new law was necessary to protect the public from harmful drugs. The case for tighter controls rested on the claim that the public needed protection from high prices being charged by the ''monopolistic'' drug industry.
The new bill was called the Drug Industry Act. Senator Kefauver introduced it on April 12, 1961; President Kennedy gave it his blessing on April 10, 1962; and the Senate Judiciary Committee reported it favorably in mid-July of 1962. This bit of legislative history is outlined to show how brilliant the timing of expert manipulators of public opinion can sometimes be. The Judiciary Committee's favorable report on the Drug Industry Act was made at a time when the nation's news media were featuring stories about Thalidomide, a German-made tranquilizing drug which was found to have caused malformation of babies in Europe. The case of a pregnant Arizona woman who had taken Thalidomide purchased in London by her husband dominated national news for several days. On August 1, 1962, President Kennedy announced that, be cause of the "Thalidomide disaster," he was recommending a 25 percent increase in FDA appropriations. He urged quick action on the pending Drug Industry Act, saying: "It is clear that to prevent even more serious disasters from occurring in this country in the future, additional legislative safeguards are necessary.
Surrounded by "disasters," fore and aft and on the flanks, all of which they could be shielded against by the proposed legislation, the people presumably were expected to forget that the new law had not been designed to protect them against disasters. It had been "intended" to protect their pocketbooks. For a pregnant woman to discover that she is bearing a malformed baby is, unquestionably, a tragedy for her and her husband; but for the President of the United States to call it a national disaster is a bit extreme. Moreover, since the drug which caused the sad affair was made in Germany and sold in England, it is difficult to see how a law controlling the American drug industry could do much about the situation. Nonetheless, the public seems to have been bamboozled by the rigged sensationalism. At least, public opposition to the new control law was quickly swept aside.
Opponents of the Drug Industry Act pointed out that medical and pharmaceutical professionals are better qualified than government agencies to determine the safety of drugs. The free force of competition is more effective than government regulation in protecting the public against both harm and high prices. When government takes control of the drug industry, prices are more likely to go up than down. Quality and progress will decline. When a federal agency can make or break a company by giving or withholding its blessing, drug companies are likely to de-emphasize the research and development required to outpace competitors; they will tend to concentrate their primary effort on currying favor with the all-powerful regulators. This will create in the drug industry, as it has already done in other heavily regulated industries, a potential breeding ground for waste, stupidity, graft, and corruption. The law will not decrease market domination by giants in the industry and thus open more opportunity for small businesses, as the law's sponsors promise; it will do the opposite. In a tightly regulated industry (airlines, for example), the market is generally dominated by a few major firms who are favorites of the regulators. None will struggle mightily to provide better products and prices than others, because all alike will be operating under standards set by the FDA.
Opponents of the new Drug Industry Act also cited the record. Even under the unconstitutional controls of the Food, Drug, and Cosmetic Act of 1938, the American drug industry had been the freest on earth, and because of that freedom it had produced more new, beneficial drugs than had been produced in all other countries combined. Approximately two-thirds of all new drugs being prescribed by British doctors were developed by American drug firms, whereas, prior to socialized medicine and rigid government control of drug production in Great Britain, the British had made outstanding contributions in the general fields of biochemistry and physiology, and in the particular field of developing "miracle drugs." In the Soviet Union, the drug industry (totally controlled by the Communist government) had not produced one new drug product of consequence in the 45 years since the Communists took control. This historical record should be considered seriously, since Communists and other socialists are behind the drug-industry-control law being proposed for the United States.
All these arguments by opponents of the new control law were ignored. The Senate, by unanimous roll-call vote, passed the Drug Industry Act of 1962 on August 23. The House passed it on September 27. A Conference Bill was quickly approved by both chambers, and President Kennedy signed it into law on October 10.
Recent statistics indicate that opponents of the Drug Industry Act of 1962 made some correct predictions. In 1962, FDA approved marketing of 155 new drugs, out of 626 applications made by the drug industry. In 1972, FDA approved 26 applications out of 229.
Since enactment of the Drug Industry Act of 1962, FDA activities have ranged far beyond the simple purpose of protecting the health, or even the pocketbooks, of the public. Some FDA regulations reflect the snobbery of all regulators and arrangers of other peoples' lives: they try to keep people from making purchases which FDA officials regard as unnecessary or in bad taste. Some FDA regulations are vengeful.
For a long time, FDA officials have been trying to regulate the health-food industry out of existence — with labeling requirements that are costly; that compel the makers of vitamins and food supplements to discredit their own products; that require them to pay tribute to their principal competitor, the regular-food industry.
The FDA has never alleged that vitamins and food supplements are harmful to health, but merely that they are unnecessary and that the public spends too much money on them. The FDA wants to protect the people against spending their money in ways which the FDA considers wasteful. This is why FDA has tried to impose labeling regulations which would require health-food packagers to discredit their own products. As FDA Commissioner James Lee Goddard explained in 1966: "We can only hope to educate people on this vitamin problem. We won't order vitamin pills off the market."
The FDA's hostile attitude toward the health food industry was more recently expressed (1973) by Dr. Ogden C. Johnson, head of the nutrition division of FDA. Asked to comment on "organic foods" or "natural foods," Dr. Johnson said:
I keep praying at night that the market will just disappear. It should not have to be legalized out, but people should be aware of the deceptions. For instance, there is much more organic produce SOLD than is GROWN. Take "turbinado" sugar, which is unrefined, so dirty the industry considers it unfit to use. Yet it is sold in health-food stores for as much as $1.95 per pound....Regular sugar is seven cents per pound.
What is a "natural" food? Does anything you do that reduces nutrients then make it non-natural?...Does peeling an orange make it less natural?
With a rather vigorous lobby of its own, the health-food industry long resisted the worst proposals made by FDA. In 1973, however, FDA issued a new set of proposed labeling regulations which, if they stand, could destroy the health-food industry. The new regulations resulted, in part, from lobbying for new labeling regulations by the chief spokesman for the health-food industry.
The chief spokesman for the health-food industry is the National Health Federation (NHF), organized in 1955. It calls itself a "noncommercial health consumer group." Unlike practically every other organization that calls itself a "consumer group," NHF is run by people who seem to be conservatively oriented. Unfortunately, however, they are not Constitutional conservatives. And thereby hangs an interesting tale.
The NHF and Constitutional conservatives have worked together on important issues — such as opposing the fluoridation of public water supplies — but they have not always stood on the same grounds.
Most Constitutional conservatives think fluoridated water is a hazard to health; but even if they thought it beneficial, they would still oppose government fluoridation of public water supplies. Why? A nation which values anything — even good health — more than it values freedom will lose its freedom. Government has no valid authority to force all the people to use water medicated with fluorides, solely because some people think a fraction of the population might benefit from such coercion. Governmental power should be limited, not by what government officials or even a majority of the people consider good or bad at any given time, but by a binding constitution which only the people can change by the deliberate process prescribed by that Constitution. That is the Constitutional conservatives' rationale in opposing fluoridation of public water supplies.
The NHF stand on fluoridation is pragmatic. The NHF opposes fluoridation because the NHF thinks it harmful to health. Which means that the NHF would approve fluoridating public water supplies if the NHF thought it would be beneficial to the health of the public. This assumption about what the National Health Federation would do can be safely deduced from what it did do with regard to food labeling. What the NHF did do demonstrates that good people can sometimes get into bad trouble if they engage in lobbying or other political activities without using fundamental principles as a guide.
Early in 1971, five militant activists (law students at George Washington University) began a legal attack on that part of the "Establishment" represented by the regular-food industry. Using the name LABEL, Inc., the five students petitioned the FDA to promulgate a regulation requiring food processors and packagers to use labels including a complete listing of all the ingredients in processed or fabricated foods. The FDA rejected the petition, saying it lacked authority to require such labeling.
Thereupon, the National Health Federation joined forces with LABEL and filed a lawsuit to force FDA to impose upon the NHF's old enemy, the regular-food industry, the labeling requirements that the NHF wanted. The NHF said its aim was to protect consumers by forcing the food industry to let consumers know exactly what they are buying. But the NHF and LABEL lost the lawsuit. On January 31, 1973, the U.S. Court of Appeals in the District of Columbia held that the FDA does not, in fact, have legal authority to require the kind of labeling that the NHF and LABEL want. But the matter did not end there.
While the NHF and LABEL case to force FDA to promulgate new food-labeling regulations was moving through the courts, the FDA was fabricating new food-labeling regulations.
On January 19, 1973, the FDA issued a massive set of proposed food-labeling regulations. Dr. Charles C. Edwards, FDA commissioner, announced that the new regulations "mark the beginning of the new era in providing consumers with complete, concise, and informative food labeling."
The FDA still contends, however, that it has no authority to require such labeling. At present, the regulations are mere recommendations, but FDA hopes they will soon "become law." Explaining, FDA's Dr. Ogden C. Johnson said: "Food labeling is still voluntary, but probably within the next two legislative sessions it will become law."
At a two-day food-labeling seminar in Denver during May of 1973, Dr. Johnson explained and defended the new regulations. They will require, he pointed out, that labels list ingredients in order of their predominance in the product; then list the nutritive values in a single serving, including calories, grams of protein, fat, and carbohydrate; then list important proteins, vitamins, and minerals according to percentages of RDA (Recommended Daily Allowances). Dr. Johnson said:
"The label will be like a small textbook, but people will have to know more about nutrition to understand the label. The RDA material is based on the metric system. We had better get used to the metric system, and nutrition is a good place to start. We have five people in FDA now interpreting our work."
Asked about the cost of the proposed labeling, Dr. Johnson said: "It depends on the size of the company and the size of the market. Some firms spend money unnecessarily."
Dr. Dee M. Graham, head of the department of food science and nutrition at the University of Missouri, also participated in the food-labeling seminar. Dr. Graham declared: 'The FDA detailed recipe-type regulations have been hailed as a major triumph by many consumerists. I feel they are a disaster for the consumer....Food labeling as proposed by FDA portends major cost increases for processor and consumer....FDA's proposals are fraught with administrative chaos, and create wide new staging areas from which militant consumer activists can launch even more damaging attacks on the FDA, the food industry, and our entire food system....I find the FDA food labeling proposals appalling."
National Health Federation officials were at first jubilant about the new FDA food-labeling proposals; but after wading through the hundreds of pages of regulations, they too were appalled — but not because the labels will be complicated textbooks-in-miniature which can be understood only by nutrition experts who are familiar with the metric system of weights and measures; and not because they are being imposed by a bureaucracy which obviously has no conception of, or concern about, the additional cost they will add to everyone's grocery bill. Rather, NHF officials were annoyed because the labeling regulations were not made mandatory upon the regular-food industry at once. They were appalled because they found in the new FDA rules a big section dealing with health foods. In a regulation applying only to foods for special dietary use (health foods) the FDA prohibits packagers, processors, and distributors from:
If the health-food industry can make none of these claims, it will have no means of persuading people to buy health foods. The industry will die; and consumers who are already convinced that health foods are beneficial to their health will no longer have the freedom to buy them because government will have regulated them out of existence.
Concerning these harsh prohibitions which the FDA will impose on the health-food industry, the NHF correctly asserts: "Unless Congress, through legislative enactment, prohibits this action, a manufacturer or distributor of [food] supplements could be imprisoned for making literally true and scientifically accurate statements, in context, in labeling foods and/or food supplements even though the products are not adulterated, deleterious or toxic."
Thus the National Health Federation, which had been lobbying and taking legal action to force FDA to require certain food labeling, reversed course and started lobbying activities and legal action to prevent FDA from requiring certain food labeling.
And the NHF announced its support of the Hosmer Bill, H.R. 643. This bill specifies: (1) that truthful nutritional claims for foods and food supplements may be made on labels and in advertising; and (2) that foods and food supplements are not drugs and cannot be regu lated as such by the FDA.
The NHF also announced that it was taking legal action in federal court — asking the court "to rule on the legality of the implementation by bureaus of regulations having the effect of law, by simply publishing their rules and regula tions in the Federal Register without the approval of Congress." That is striking at the heart of the tyrannical, unconstitutional, "administrative law" system which Congress has spawned and nourished in the United States; and it needs to be done. The NHF officials seem to be quite unaware, however, that, in their court case against the FDA, they are expressing outrage about the FDA's doing to them precisely what they previously had tried to force the FDA to do to others.
If American business is ever to remove the burden of excessive government regulation from its shoulders, businessmen must stop trying to use government to bludgeon their competition and unite behind constitutional principles in the interests of a free economy which best serves us all.
CHAPTER 7 - FARMING AND FRAMING THE TAXPAYERS [BACK TO TOP]
Farming, like manufacturing, is a business. And it may surprise you to learn that the federal farm laws, like all other federal laws to regulate business activities, are descendants of the Interstate Commerce Act of 1887 and of the Sherman Antitrust Act of 1890.
In 1929, the price of wheat was falling, while general living costs were rising. Congress enacted, and President Herbert Hoover signed, the Farm Stabilization Act, authorizing the federal government to buy wheat in order to bolster the market. The government bought and stored 257 million bushels of wheat. That did bolster the price of wheat for a while; but in 1931 and 1932 the government dumped the stored wheat on the market, driving the price of wheat down to the lowest level in history. Many small family farmers, who were pinched in 1929 before government "helped" them, were bankrupt because of that help by the end of 1932.
That was the beginning of federal farm programs.
In 1933, Communists in President Franklin D. Roosevelt's Department of Agriculture conceived a farm program which Congress authorized with the Agricultural Adjustment Act (AAA) of 1933. In 1936, the Supreme Court (in the Butler Case) held the AAA of 1933 to be unconstitutional. It was unconstitutional, and so was the Farm Stabilization Act of 1929. The Constitution gives the federal government no power to regulate or subsidize farming; and the Tenth Amendment says that powers not delegated to the federal government are reserved to states or to the people. Nonetheless, in 1938 Congress enacted another Agricultural Adjustment Act, authorizing even more illegal intervention in the farming business than the 1933 law had authorized. By 1938, President Roosevelt had seated a New Deal majority on the Supreme Court; and the Court approved the AAA of 1938. All subsequent federal farm laws have been amendments of, or additions to, that 1938 Act.
The publicly stated purpose of the Communist-conceived farm programs of the 1930's was to save the small family farmers, the backbone of the nation, who were foundering in the Great Depression. To that end, farmers were paid to destroy crops and animals instead of selling them at low prices to a public that was paying high prices for foreign imports of the same kinds of food stuffs that American farmers were destroying. The government also bought farm commodities and held them in storage to keep them from being sold to American consumers at low prices — even as consumers were paying high prices for foreign imports of the same commodities.
Thus bluntly outlined, the farm program seems unbelievable, even nightmarish. But government contrived to justify and explain it with a word: surplus. The farmer was suffering because he could not get good prices for what he produced; prices were low beca