“Without government regulations, wouldn’t we be eating poisoned food and consuming dangerous drugs?”

I thought that I would take a little time to talk about private sector alternatives to government regulations.

I have often seen/heard free market minded people (like myself) criticized and demonized, because of the common misconception that we need government to manage all sorts of aspects of life to keep us safe. I hear things like:

“Without the Food and Drug Administration, all of our food will be poisoned!”
“If we abolish the Department of Education, our children won’t be educated!”
“Get rid of the Department of Energy, and this will drive gas prices through the roof!”

These fears are horribly unfounded.

We have educated children without a government bureaucracy, and we have developed a sprawling petroleum industry without the Department of Energy. There are ways to keep people safe without government agencies, not to mention avoid the corruption and inefficiency that comes with them.

Don’t automatically assume that just because the government writes a law or opens a new department with a nice buzzword attached, it’s automatically a good thing.

How/why the “Progressive Era” is misunderstood:

In school, we are taught that the “Progressive Era” (that is the late nineteenth, early twentieth century) was this great time when the noble government stepped in to protect us from the “Evil Robber Barons”, the “monopolies”, “dangerous working conditions”, and “poisoned food”.

This is largely mythology.

I have read about this typical “school boy” version of the story, as well as read several books and watched videos that have offered a very rendition. This is a good book on such topic:

The historian Gabriel Kolkp presents the Progressive Era in a very different light from what was described above. The book is very well sourced, documenting correspondence between business people and government officials. All the way from senators and congresspeople, to the presidents themselves. Kolko talks about the development of crony capitalism or as he calls it, “political capitalism”.

I should emphasize what the word “conservatism” means here. “Laissez faire” ( “let to do” in French) was considered a newer approach to the economy at the time. It was believed that the government should have a hand in the economy.

Lots of government interference in business was actually reminiscent of the older way of doing things, by way of the mercantilism system. Kolko used his sources to show how America went back to the old ways, rather than allowing a “laissez faire” economy to operate. That’s what the title of the book means: The older mercantilism principles won the ideological battle.

(For those who don’t know what mercantilism is, it’s basically where the government sponsors a series of businesses using tax payer dollars, and gets a kickback from those businesses. Think of names you may have heard like “The West India Trading Company”. It was believed that it was the most efficient economic system during the centuries in between feudalism and laissez faire capitalism.)

Here’s the gist of Kolko’s narrative:

The nineteenth century saw the greatest economic expansion in the history of mankind. Many became wealthy during this era, but they still weren’t satisfied. Due to intense competition and constantly changing consumer tastes, the moneyed elite (Like JP Morgan and John Rockefeller) worried about their status, and wanted to find a way to ensure it. They lobbied the government in order to achieve this.

Some examples of this:

The Federal Reserve was founded because the Wall Street banks were struggling with competition from the new banks out West. They wanted to cement their control over the banking system, so they prevailed upon President Woodrow Wilson to sign the Federal Reserve Act. It was “officially” founded to “maintain the value of the dollar, and balance out the business cycle.” In reality, it gave Wall Street a cartel style control over the banking system.

Teddy Roosevelt appointed the quack chemist Harvey Washington Wiley, to regulate food via the Pure Food and Drug Act of 1906. While I’m not arguing against pure food and drugs, this was perhaps not the best way to do it. What Wiley did was for political expediency, and to enhance the power of big business.

Wiley launched all sorts of bizarre crusades against different products:

• Wiley outlawed ketchup made with additives. This shut down his friend Henry Heinz’s competitors, giving Heinz a near monopoly on the business. He brought other ketchup companies to trial at the Supreme Court, claiming that they were serving rancid products. The Court ultimately concluded that there was no risk.
• Wiley pushed to outlaw watered down whiskey to benefit producers of straight whiskey, and tried to convince the public that watered whiskey was unhealthy.
• He tried to outlaw margarine. This was to satisfy producers of butter, that were threatened by this new product.
• He tried to outlaw glucose. Being made from corn, it took business away from the sugar cane industry. The corn industry back then was nowhere near as powerful as it is today.
• Wiley attacked Coca Cola, due to a near superstitious fear that the company would add caffeine to other items (such as bread) so that people would become addicted to them.
  
  There was no huge outcry from the public for any of these regulations. Food borne illnesses existed as they do today, but not on a huge scale as we are lead to believe. Freezing, canning, and and the early stages of refrigeration were emerging at this time, allowing for food to be kept longer. This was the era of Louis Pasteur when pathogens were beginning to become understood. (If you can’t tell by the name, he was the man responsible for killing bacteria in milk using heat called “pasteurization”.) Many diseases were wiped out entirely, due to recent advances in medicine.
  
  
  Roosevelt ultimately became disillusioned with Wiley and his wacky campaign. However the legislation lived on, eventually becoming the full fledged Food and Drug Administration.

The truth about Upton Sinclair and “The Jungle”:

We are taught that the conditions in the meat packing industry were highly unsanitary at the time. The champion for the workers Upton Sinclair wrote a book called the “The Jungle” which described the horrific conditions in slaughterhouse and meat packing plants. In the book, Sinclair talked about people falling into meat grinders and getting ground up with the meat, and served to the public.

Thanks to him, we have clean slaughterhouses today.

This wasn’t reality.

Sinclair was a failing fiction writer. He was frustrated with the literary world, but was determined to succeed. He decided to become a “muckraker”.

(The “muckrakers” were the equivalent of the tabloids like “The National Enquirer” of their day. They wrote not to protect the public, but to make money by stirring up controversy through sensationalism.)

Sinclair was turned down by six different publishers for his book. The “Appeal to Reason”, a socialist publication paid him $100 to write it for their paper.

The book reached many readers, and it’s content caused a widespread panic. It even caused meat sales to drop by half. Roosevelt, for the sake of preserving his reputation and appeasing the public hysteria, passed the Federal Meat Inspection Act, in addition to the Pure Food and Drug Act.

Some believe that Roosevelt had a personal vendetta against the meat industry, from having been poisoned by improperly handled meat when he was a soldier during the Spanish American war.

Roosevelt has been usually portrayed as being in line with Sinclair’s vision but in reality despised him, and called him a “crackpot”. He believed that Sinclair exaggerated and in some cases, flat out lied.

These new regulations (or more notably, the requirements that came with them) benefited the big competitors, because they were able to invest in new machinery and larger facilities. Many of their smaller competitors went bankrupt. Robert L. Rabin of the Stanford Law review wrote:

“The large meat packers, well aware of the ill-will on all sides and cognizant of their comparative advantages over smaller competitors in complying with federal regulation, did not fight comprehensive regulation.”

A few final points on this:

• There was already government inspection of meat plants in place before 1906. It was just done by local and state governments.
• If what Sinclair described was actually happening, the previous meat inspectors were either lazy, incompetent, or some combination of the two.
• If this was already the case, why did people think that having federal inspectors would change things? There’s nothing magical about federal vs. state government employees.
• Ultimately the meat inspectors liked this because it shifted the cost of meat inspection to the tax payer. Whereas originally, the meat plant would have had to pay the inspectors themselves.

The truth about the anti-trust laws

We are taught about the “Sherman Anti-Trust Act” and how it saved American consumers by outlawing “dangerous monopolies”. The real story is of course, more sinister.

The Sherman Anti-Trust Act was originally written for three main purposes:

1. To outlaw labor unions, which were gaining power and influence. They were seen as a threat to big business.

Don’t believe me? Read the document itself:

“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, is declared to be illegal.”

This was later changed with the “Clayton Anti-Trust Act” signed into law by Roosevelt’s successor Woodrow Wilson. He most likely wanted it because it benefited his union constituents.

2. Sour grapes competitors couldn’t compete with businessmen like John D. Rockefeller, so they pushed for its passing.. We are told that he had a monopoly on oil, but it’s not true. When his company was broken up, he had about 300 competitors. Many of those companies ganged up on him, and used the power of that State to beat him, rather than by outperforming him in the market.

3. The government protected American businesses from foreign competition by enacting very high tariffs. For those that don’t know, a tariff is a tax on imports. It’s a way for the government to collect money, but also to discourage people from buying foreign goods. This enables local businesses to raise their prices higher than the usually would.

For example, I have the choice between a pair of shoes made here, and a pair of shoes from Britain. The shoes from here cost $50, and the shoes from Britain cost $40. The government imposes a 50% tariff, in order to benefit the American shoe company that finances certain politicians. The shoes from Britain would now cost $60, giving the American producer an advantage that he wouldn’t have had otherwise.

It’s ultimately just an extra cost to the consumers, and the only ones that benefit are the protected businesses. The government wanted to come across as being on the side of the consumers, so this Anti-Trust legislation gave off that impression.

The New York Times was originally for the act, but later renounced their claim. They said:

“That so called anti-Trust law was passed to deceive the people and make the way for the enactment of this… law relating to the tariff. It was projected in order that the party organs might say to the opponents of tariff extortion and protected combinations, ‘Behold! We have attacked the Trusts. The Republican party is the enemy of all such rings.’”

There has never been an actual monopoly without government intervention. Some businesses tried to band together to control an industry, but it didn’t work.

As Kolko does a great job of explaining in his book, there was a business “merger movement” in the very early 20th century, but it failed.

A few reasons that mergers didn’t last:

-Lots of different leaders coming together means lots of different ideas for what direction to take a company in. This is bound to create strife and division, and ultimately fall apart.

-Not all companies had equal say in the merger, so this created resentment and division.

-It was hard to run a nation wide company in those days, since travel and communication was much harder.

- Some of the companies that tried to merge already were struggling, and this just weakened the newly merged company. The stronger companies didn’t want to be dragged down, so they pulled out.

-“Chiseling”

It was common for member companies of a merger to cheat, or “chisel” on the agreement.

Example as to how this could play out:

Lets say that five steel companies got together, and agreed to sell steel for $30 a beam. However, one of the member companies realizes that they can sell a beam for $20, and still turn a nice profit. Since their price is cheaper for the same product, more customers will likely buy only from that company. That company then leaves the cartel, because it’s far more lucrative for them to sell at a lower price on their own.

Empowering big business by way of government:

With the expansive new bureaucracy, this enabled businesses to influence the government and market as they saw fit. The danger of corruption had always been there, but became worse as government expanded.

Since the people regulating the industries had previous loyalties upon taking government positions, this gave the people in the industries that were being regulated, additional power. This is known as “regulatory capture”.

A quick example:

Who typically runs the Food and Drug Administration? Usually a major head of a pharmaceutical or food company, and their staff is made up of former employees of major companies.

Let’s just say for the purpose of this example, it’s a former CEO of Johnson and Johnson.

Once the former CEO is in charge of regulating the industry, they can do things that will benefit their previous employer, and hurts their competitors.

If Johnson and Johnson wants to sell a new anti-inflammatory drug that has some bad side effects such as internal bleeding, the people in charge at the FDA have the ability to let it slip through the radar. They are benefiting their old employers, and doing it under the guise of “ regulating safety for the public good”.

Then if a J and J competitor like Pfizer produces a drug that is more effective and doesn’t have the same side effects, they can block the drug’s approval, and ultimately distribution. Since they are in charge of the regulatory bureau, they can come up with all sorts of reasons as to why it can’t pass. Reality of course, is that they are just using the power of the government for personal ends.

… And everything that I just said doesn’t even get into other issues with the FDA, such as how much it costs to have drugs approved or patent rights. The price is in the millions per drug, which automatically shuts out any potential and mid sized competitors.

Who will regulate the regulators?

Conclusion on the Progressive Era:

So as you can see, much of the legislation and bureaucracy that was put in place during the “Progressive Era” was enacted in order to satisfy big business, and the reputations of the politicians that they supported.

I realize that at first that this comes across as unorthodox to the average person; many people believe that the government enacts laws and policies for “the public good”. A person that goes against this mantra can across as odd, naive, and dangerous.

I of course, am arguing the opposite. An expansive regulatory state just empowers big business at the expense of the little guys. The start up fees and permits required just make it harder for someone to get a business up and running.

The government has a monopoly on regulation. As with any monopoly, the lack of competition leads to waste, fraud, and corruption.

This doesn’t mean that there aren’t way to keep people safe, and still have a free society. I have a few ideas that I believe would also minimize corruption, regulate better than government does, allow for a reduction (and ultimately elimination) of taxes, and create jobs.

Pure food and drugs, handled by the private sector:

So how do we maintain, or even improve the safety of our food and drugs without the FDA?

Here’s a potential idea:

Private insurance agencies would develop, that would hire experts in various industries. For example, an agency in charge of approving drugs would hire doctors, pharmacists, etc.

There could be private agencies in charge of inspecting restaurants, that could be staffed by former chefs, health inspectors, and others that know the business.

The agency would offer to approve a business or product for a fee. The doctors, pharmacists, and whoever else would visit the company, run their own tests based on what they know, and approve the business/product.

“Wouldn’t this be more expensive?”

No, because competition in the market would drive the price down, as is the case for anything else. If someone offers to approve a drug for $5,000, somebody else with a similar background can swoop in and approve it for $4,500. Numerous agencies would compete with one another for a “race to the bottom”. Think of how various insurance companies compete with one another.

The agencies would be motivated by profit, but also by the desire to do a good job or else they would go under. Just like any poorly run business should.

Contrast this with the FDA, which isn’t going out of business any time soon.

“Wouldn’t the agencies be bought off like the FDA, and allow for poor quality products?”

Far less likely, and here’s why:

Once the agency agrees to approve the business/product, they would issue a certificate of approval, listing their name and credentials, and that everything is up to par. The document could be displayed, similarly to a diploma in a doctor’s office, or an award plaque in a restaurant.

The agency’s fate would now be tied to the business. If a person were to get harmed in any way, the business that produced it and the person that approved it would now equally responsible. The victim would then be able to take action against the two.

This motivates the inspectors to do a thorough job, because their reputation and the reputation of their employer would be on the line. If someone were to get sick because of a bad drug/dirty kitchen, they could lose it all. This is an incentive to be thorough, and not cut corners.

There are definitely restaurants open now that shouldn’t be in my view, in spite of government regulation. I had a friend that worked at a place that had rats, roaches, and the health inspector told him not to drink the water there! Yet, somehow the place stayed open.

Try suing the FDA if you get sick from a bad drug. They’re not even that thorough. The independent organization “ Worst Pills, Best Pills” has correctly predicted numerous instances where the FDA would later recall a drug that it had recently approved.

http://www.worstpills.org/

Since there would be numerous inspectors/agencies, they would be able to do a much more thorough screening than the FDA does. Whereas some drugs are now backed up from being released for a decade, this system would allow for the availability of better and higher quality drugs. Different experts could bring different levels of knowledge to bear, and give a more comprehensive analysis of a drug before it hits the market.

I often think about what kind of anti-cancer drugs and health supplements we are missing out on right now.


“Would this inspection be mandatory?”

No, it would be up to the discretion of the company, but this would be a bad choice on their part. They would have to prove to a customer that they are trustworthy.

If customers see that a drug/food hasn’t been approved, they will most likely stay away. This an incentive for the business to get their act together. And under this sort of system, it would be far easier for a little guy to get their foot in the door.

Texas and North Carolina have embraced what are called “Cottage Food laws”. A person can produce baked goods in their own home, if they get an inspection of the house. The person also has to take a “food handler’s course”, which only costs $20. In a free society it wouldn’t be issued by the government, but I’m sure that there could be an agency that could offer the service.

The Cottage Food Laws provide a great opportunity for those that don’t have the money to rent out a bakery, but want to get a business up and running. Texas reports having opened around 1,000 small bakeries after this was enacted. If the small business owner does well, they can save, hire more workers, and rent out their own bakery when they can afford to.

Conclusion:

Theses are just a few potential ideas on how to improve safety and quality without the government.

Thank you for reading!

-STK