Summaries of Important Research
Edited By Martin Morse Wooster
POLITICS
Still Growing and Growing
Jonathan Walters, "Did Somebody Say Downsizing?" in Governing (February 1998), 1100 Connecticut Avenue N.W. #1300, Washington, D.C. 20036.
In 1994, Republican governors across America were elected or re-elected on platforms of shrinking government. But once in office, these governors have reneged on their promises, notes Jonathan Walters of Governing. Governor George Pataki has managed to reduce New York’s payroll by 5.2 percent during his tenure, but all other governors have steadily increased the number of bureaucrats working for them. In California, for example, Governor Pete Wilson (R) initially eliminated two state commissions and cut middle management by 10 percent. Since 1990, however, California state government has expanded by six percent. In his successful 1994 bid for governor, George W. Bush vowed to cut Texas’s payroll, yet it has grown by 15 percent. Utah’s government has grown by 23 percent in the ’90s, with the largest increases in the state’s prisons and the Department of Motor Vehicles. Schools are another growth bureaucracy in many states.
In addition, some governors have expanded the size and scope of government without increasing their official bureaucracy—by hiring private contractors who aren’t counted as state employees. In Georgia, for example, Governor Zell Miller (D) recently launched a program providing pre-kindergarten activities for 100,000 four-year-olds. But because the state is paying local public schools and private contractors to run the program, "Miller can legitimately boast that the state isn’t adding staff to handle the big job."
The Lessons of Edmund Burke
John R. Bolton, "The Prudent Irishman: Edmund Burke’s Realism," in The National Interest (Winter 1997/98), 1112 16th Street N.W. #540, Washington, D.C. 20036.
Now that the Cold War is over, what should America’s role in the world be? Some argue that America should embrace isolationism while others call for the U.S. to establish democracies worldwide. Still others, including John Bolton of the American Enterprise Institute, argue that realism not idealism is in order. Bolton believes the best guide to a realist foreign policy is Edmund Burke, the great eighteenth-century politician and author. The lessons Burke can teach include "his reliance on the accretion of experience and reasoning from empirical reality, his abhorrence of elevating abstract principles into a theology, and his fear of driving policy on the basis of metaphysics."
Burke was a consistent foe of ideologues. For example, he opposed the French revolution precisely because he feared the French wanted to impose their totalitarian beliefs on the world. The battle between England and France, was "a war between the partisans of the ancient civil, moral, and political order of Europe against a sect of fanatical and ambitious atheists aiming at universal empire, and beginning with the conquest of France."
Burke’s distaste for extreme ideology was not limited to the French. One reason he favored giving America as much independence as possible was that he opposed the notion that King George III had a right to rule arbitrarily. On the other hand, though Burke agreed with Americans that they were overtaxed, he disagreed when they contended that they had an absolute right to liberty. "Abstract liberty, like other mere abstractions, is not to be found," Burke wrote.
With the collapse of Communism, we live in an age where ideologies are less important than in the past. Studying Burke, Bolton suggests, will teach diplomats and statesmen not to rely on "abstract principles and absolute rights" in their efforts to tame foes and persuade allies.
ECONOMICS AND BUSINESS
Trial Lawyers are Evil, Part 742
Lawrence W. Schonbrun, "The Class-action Con Game," in Regulation (Fall 1997), Cato Institute, 1000 Massachusetts Avenue N.W., Washington, D.C. 20001.
As recent lawsuits against the tobacco industry show, class-action lawyers can make millions of dollars by suing corporations. Lawrence Schonbrun argues that the tobacco suits are not exceptional. Businesses are being sued for a wide variety of alleged problems—and lawyers, not consumers, tend to be the primary beneficiaries.
Much of the time, consumers win surprisingly little in class-action suits. A 1993 suit in Alabama courts found the Bank of Boston guilty of charging escrow accounts excessively for insurance and other fees. The courts awarded $2.19 to any Bank of Boston account holder who qualified—yet allowed the bank to charge customers for attorneys’ fees. The result: the bank charged customers $91.33 for a $2.19 credit.
Class-action lawsuits are an inefficient way to transfer wealth from corporations to consumers because the process of awarding a claim is cumbersome. Only 5-10 percent of every dollar in class-action damages ends up in consumers’ pockets, according to the Law and Economics Consulting Group. The remainder goes to trial lawyers (who can collect as much as a third of the settlement in contingency fees) or is returned to defendants.
To stop the proliferation of class-action suits, Schonbrun suggests permitting trial lawyers only to sue on behalf of plaintiffs who agree to be part of the suit. This rule (which was U.S. law until 1966) would prevent attorneys from having "the ability to sue on behalf of limitless numbers of unknown persons."
The High-tech Pork Barrel
Scott Wallsten, "Can Government-Industry R & D Programs Increase Private R & D? The Case of the Small Business Innovation Research Program." Department of Economics, Stanford University, Stanford, California 94305.
Advocates of government subsidies to corporations like to point to the Small Business Innovation Research program as an example of government successfully spurring high-tech innovation. Founded in 1991, the program now dispenses over $1 billion a year. But Scott Wallsten, a Stanford economist, argues the program funds research that firms would undertake without federal support.
Wallsten examined 216 of the program’s grant recipients as well as 55 companies that were rejected for grants. He found that successful applicants tended to be larger companies with more employees than firms who were denied grants. Successful firms were also far more likely to own patents. These findings, Wallsten writes, suggest that "government is ‘picking winners’ by funding projects submitted by firms that have a history of doing R & D and have already achieved some degree of market success."
Wallsten also found that, on average, firms that received grants reduced their own spending on research and development. He believes these grants resulted in "nearly a dollar-for-dollar crowding out effect" on private research spending.
Also, no evidence was found that the grants created jobs nor led to new patents, and Wallsten concludes that the program has done little to encourage innovation. "Instead of taking risks," he writes, it "seems to be designed to fund projects with a high probability of commercial success and thus produce many ‘success stories,’ which proponents can then point to."
Don’t Fear the Advertiser
John E. Calfee, Fear of Persuasion: A New Perspective on Advertising and Regulation. agora, distributed by aei Press, 1150 17th Street N.W., Washington, D.C. 20036.
Most people think that advertisers manipulate people into buying things they don’t want and that government should protect consumers from the harms caused by media manipulators. Wrong, says John Calfee, a resident scholar at the American Enterprise Institute. In fact, advertisers do a poor job of manipulation, while government efforts to regulate advertising usually do more harm than good.
Polls taken over several decades consistently report two consumer responses to ads: Most people say they don’t believe ads, and most people say they carefully read ads before making purchases. The latter fact makes advertising "an immensely powerful instrument for the elimination of ignorance," as Nobel Prize-winning economist George Stigler once put it.
But regulators regularly prevent advertisers from providing consumers with information. In the 1960s, for example, the Food and Drug Administration banned advertisers from informing the public about the cholesterol and fat content of their products. In the 1950s, cigarette advertisers competed to offer smokes with steadily lower amounts of tar and nicotine, while boasting that competitors’ brands were more likely to kill. These "fear ads" helped cause steadily falling cigarette sales until the Federal Trade Commission banned them in 1954. The result: cigarette sales once again rose.
More recently, consumer groups have lobbied for bans on tobacco and alcohol advertising. But Calfee argues there is no evidence that banning tobacco and alcohol advertising leads to a reduction in smoking and drinking. Canada, for example, banned most tobacco advertising in 1990 and sharply increased tobacco taxes. The result: the percentage of Canadians who smoke rose between 1990-94. In China, a ban on tobacco ads harmed the public health, because it ensured that Chinese consumers stayed with Chinese brands, high in tar and nicotine, rather than switch to lower-tar Western cigarettes.
Instead of punitive bans or restrictions, Calfee concludes, the best way government can help consumers is to ensure free and vigorous advertising of all legal products. "Competitive advertising is stacked in favor of the consumer interest," he writes, "and the regulatory system is stacked against it."
SOCIETY
Zoning Rights and Wrongs
Samuel Staley and Lynn Scarlett, Market-oriented Planning: Principles and Tools. Reason Public Policy Institute, 3415 South Sepulveda Boulevard #400, Los Angeles, California 90034.
If you own or run a business, one of your more unpleasant chores may be dealing with a local zoning board. Samuel Staley of the Buckeye Institute and Lynn Scarlett of the Reason Public Policy Institute argue that local zoning boards could become more productive by adopting a process they call "market-oriented planning."
Zoning boards often implement decades-old plans that failed to foresee such things as the rise of telecommuting, and thus impose severe restrictions on entrepreneurs who want to work from home. Planners also did not anticipate delivery systems that eliminate the need for big warehouses, leaving many cities with numerous vacant buildings.
Market-oriented planning involves several principles, including:
• Devolution of power. Communities ought to be able to make their own decisions on how their land should be used. State-wide land-use plans, as adopted in Oregon and elsewhere, should be discouraged.
• Flexibility in decision-making. City areas should be useable for many purposes. An area zoned for a strip mall, for example, can often also be suitable for multi-family housing. Since cities are constantly evolving as the needs and desires of residents change, master plans should be suggestions rather than rigid rules.
• Limiting standing. Environmentalists who object to a proposed development often generate formidable amounts of red tape even when they do not live near the property in question. Staley and Scarlett suggest that only people affected by a development be allowed to voice their concerns, not pressure groups in state capitals or in Washington.
• Make developers pay for improvements—within limits. Developers should pay the cost of new roads or other infrastructure, but should have some say in how their money is spent. For example, developers often have to pay for larger-than-necessary storm drains, or for interstate-quality roads leading into small housing complexes. Such burdens are wasteful and unnecessary.
Centralized planning by bureaucratic mandates, Staley and Scarlett conclude, "is both costly and incompatible with dynamic economies. Market-oriented planning offers both greater predictability and greater flexibility so that communities can evolve as economies and consumer preferences change over time."
Doctors Don’t Discriminate Against Women
Sally L. Satel, "There Is No Women’s Health Crisis," in The Public Interest (Winter 1998), 1112 16th Street N.W. #530, Washington, D.C. 20036.
A recurring complaint among feminists is that medical research discriminates against women. First Lady Hillary Rodham Clinton, for example, has denounced "the appalling degree to which women were routinely excluded from clinical trials." Secretary of Health and Human Services Donna Shalala adds, "Women have good reason to be cynical about whether this country cares" about their health.
Sally Satel, lecturer at the Yale School of Medicine, disagrees. Some important medical studies that began in the 1950s and ’60s did exclude women. But since 1978, most important clinical trials have included women. Johns Hopkins researchers Adele Gilpin and Curtis Meinert examined 15,000 studies that began in 1993 and found that 60-70 percent included women. Harvard School of Public Health researcher Chloe Bird looked at all clinical trials published in the Journal of the American Medical Association between 1990-92. She found that 83 percent included women—and the remainder either involved male-only diseases or took place in such male-dominated institutions as prisons and veterans hospitals. About 30 percent of the participants in nih-funded aids research trials are women—double the percentage of aids-sufferers who are female.
If anything, medical researchers favor women. The largest study under way at the National Institutes of Health (nih) is the 14-year, $625 million Women’s Health Initiative, which does not include men. The National Cancer Institute spends more battling breast cancer than any other form of cancer, even though more women die from malignancies of the lung than from those of the breast.
Satel believes there are many unsolved medical issues that are primarily of interest to women, such as the validity of hormone replacement therapy and whether drug dosages should change after menopause. "But it is wrongheaded," she emphasizes, "to confuse the need to know more—an imperative that will always be with us—with the notion that women are second-class subjects of medical research."
Is Ignorance an Excuse?
Dan M. Kahan, "Ignorance of the Law Is No Excuse—But Only for the Virtuous," in Michigan Law Review (October 1997), 625 South State Street, Ann Arbor, Michigan 48109.
It’s a long-standing legal maxim that "ignorance of the law is no excuse." But this notion, often referred to as the "mistake-of-law doctrine," was adopted in far simpler times. Dan Kahan, who teaches at the University of Chicago Law School, suggests that ordinary citizens who try to keep up with increasingly arcane laws do so at their peril.
Julio Marrero, for instance, was arrested in a Manhattan disco at 1 a.m. for illegally carrying a weapon. He explained to the courts that the New York gun ban specifically exempted "corrections officers of any state correctional facility or of any penal correctional institution." Since Marrero worked in a federal prison in Danbury, Connecticut, he believed that the reference to "any penal correctional institution" applied to him—a belief reinforced by his instructor during a criminal justice course he took while off-duty. But though lower courts agreed with Marrero, the New York State Court of Appeals disagreed and sent Marrero to jail on the claim that he should have studied the law more closely.
The Marrero case, Kahan believes, shows that even well-prepared citizens suffer under the mistake-of-law doctrine, though sometimes courts are lenient with a first-time offender. Over the years, courts have excused small campaign contributors who didn’t report their contributions, CB radio-users who didn’t get a government license, or importers of amphibious vehicles, pressure-breathing suits, and aerial cameras who didn’t obtain government approval before bringing these products into the U.S. In such cases, "courts have recognized mistake of law as a defense because the underlying conduct violates no moral norms independent of the law that prohibits it." Courts have been harsher in confronting behavior that seems immoral or illegal, even if it has not been outlawed, such as sawing off shotgun barrels.
"Refusing to excuse even reasonable mistakes" discourages citizens from researching what laws define as right and wrong, Kahan writes, "by making it hazardous for a citizen to rely on her private understanding of the law."
SCIENCE AND ENVIRONMENT
Tiger, Tiger
Michael t’Sas-Rolfes, "Who Will Save the Wild Tiger?" perc, 502 South 19th Avenue #211, Bozeman, Montana 59715.
International efforts to save tigers have become increasingly more stringent as the world’s tiger supply steadily declines. In 1900, conservationists estimate, the world had about 100,000 tigers. Today, only about 4,800 to 7,300 tigers remain in the wild, with about the same number living in zoos or circuses.
Michael t’Sas-Rolfes, a conservation economist, says environmentalists have done a poor job in protecting the tiger because they have relied on strict government controls. Free markets and private property, he argues, could do a better job in tiger conservation than governments.
The international ban on tiger products has made tigers an increasingly valuable commodity. In some countries, the prices poachers pay for one tiger skeleton "may be as much as ten times the average annual per capita gross national product," and tiger bones, valued in Asia for their purported medicinal properties, are easily smuggled.
Most people who live in tiger habitats are poor and would happily see tigers killed, since they often eat cattle and occasionally humans. Yet tigers could be protected by "ecotourism" and limited tiger hunts. Indeed, "regulated trophy hunting of charismatic wild species" already generates a good deal of money for conservation measures in Africa.
t’Sas-Rolfes suggests that commercial tiger-breeding facilities, which currently exist in China and Thailand, could lessen the demand for black-market tiger bones. In a similar case, Chinese breeders have helped protect black bears by selling bear bones from farms at lower costs than poachers charge in the black market.
Environmentalists could also protect tiger habitat by buying land for the animals’ use. "Adopt-a-tiger" programs, where donors could designate the reserve where their funds should go, could provide a potent source of revenue for international conservation groups.
"If environmentalists are to succeed in saving the wild tiger from extinction," t’Sas-Rolfes concludes, they "must convert live tigers from liabilities to assets" by replacing command-and-control regulation with market-based measures.
OTHER COUNTRIES
Prague’s Market Spring
Thomas W. Hazlett, "Velvet Devolution," in Reason (March 1998), 3415 South Sepulveda Boulevard #400, Los Angeles, California 90034.
This past November, Vaclav Klaus resigned as prime minister of the Czech Republic after his coalition government collapsed in a corruption scandal. As finance minister from 1989-92 and prime minister from 1992-97, Klaus played a crucial role in transforming his nation’s economy from communism to capitalism.
But after his resignation, some critics argued that Klaus’s tenure had been a failure. Business Week, for example, described the Czech Republic under Klaus as "another place where free markets went haywire." Thomas Hazlett, an economist at the University of California, Davis, thinks that assessment too harsh. "The sky, while a bit darker these days, has not fallen on the Czech Republic," he writes.
When Klaus became finance minister in December 1989, only 3 percent of the Czechoslovak economy was in private hands. By December 1995, after the second wave of privatizations (and the Slovak secession), 75 percent of the Czech economy was in the private sector. The Wall Street Journal reports that the Czech economy ranks 12th on a global index of economic freedom, higher than Germany (which ranks 21st), Hungary (64th) and Poland (85th).
But Klaus could have done a better job, Hazlett argues. According to the National Property Fund, while Czech corporations worth $10 billion were successfully privatized, businesses worth $6 billion remain in government control. The state still controls railways, coal mines, oil and steel companies, and the Czech national airline. More significantly, several major banks remain under Czech government control. These banks lent recklessly to dubious enterprises—including many failing state-owned firms—knowing the government would not allow the bankers to foreclose on the loans.
Continuing state ownership of banking, Hazlett argues, is a major reason why the Prague Stock Exchange index has fallen from roughly 1000 to 500 in just four years. But there are other reasons why capitalism has not thrived. Without an independent judiciary, the Czech government has found it hard to enforce property rights, including stock ownership. And no bankruptcy law exists, resulting in "very confused and lengthy litigation" whenever a Czech firm declares bankruptcy.
Hazlett believes Klaus’s Civic Democratic Party will likely lose the next Czech national elections, to be held some time during 1998. But there’s little chance a future government will reverse Klaus’s work, since many members of the Social Democrats have argued that Klaus did not go far enough in privatization. Moreover, "the Communists have no party and no chance—a situation nearly unique in the region."
"No serious electoral entity," Hazlett concludes, "will attack Klaus’s transforming achievements."
In the Steppes of Central Asia
Zanny Minton Beddoes, "Central Asia: A Caspian Gamble," in The Economist (February 7, 1998), 25 St. James’s Street, London SW1A 1HG, England.
One of the enduring themes of nineteenth-century diplomacy was the "Great Game" between Britain and Russia over control of Central Asia. With the collapse of the Soviet Union, diplomats around the world once again wonder and worry over who will rule Tashkent or Samarkand. The main interest, notes Economist staff writer Zanny Beddoes, is who will control the vast untapped Central Asian oil and gas reserves.
The Caspian basin currently has approximately 70 billion barrels of oil, according to Woods McKenzie, a petroleum consulting firm. This is about six percent of the world’s known energy reserves, and tapping it will make many countries richer. Azerbaijan, for example, could see its oil revenues rise to $6 billion annually by 2010, increasing its gross national product tenfold.
But many tricky diplomatic questions need to be settled before oil and gas companies can expand their Central Asian operations. Pipelines currently are scarce. Should pipelines be built across the entire continent? Should the oil and gas under the Caspian Sea be equally divided among the five nations whose land includes stretches of the sea coast, or should each nation extend its boundaries into the sea?
Corporations will also have to deal with the strongmen who rule the five nations of Central Asia. These former Communist apparatchiks, Beddoes reports, are often egomaniacs: Turkmenistan’s president, for example, leads a government that combines "an extreme personality cult with a police state." Bribery is also commonplace: paying off a tax collector in Azerbaijan costs $50,000, while customs inspectors in Uzbekistan routinely demand 10 percent of the value of anything imported into that nation.
Beddoes also suggests that Central Asia’s leaders consider what to do with their newfound wealth. They could, as the Norwegians have done, carefully invest the money to ensure that their countries will benefit when the oil and gas run out. Or Central Asian strongmen could follow the sorry fate of Nigeria, and fritter away their windfall foolishly. "Authoritarianism, corruption, and cronyism are rife" in Central Asia, warns Beddoes. And "unchallenged, these weaknesses will prevent the region from fulfilling its promise."
