Nation Topics - Business | The Nation

If politics got real...the debate over costly prescription drugs would turn to more fundamental solutions like breaking up the pharmaceutical industry's patent monopolies, which generate soaring drug prices, and rewarding consumers for the billions of tax dollars spent to develop new medicines. As a business proposition, that sounds radical, but it would actually eliminate outrageous profit-skimming at taxpayers' expense and liberate lifesaving medicines from inflated prices so millions of people worldwide could afford the health benefits.

At present, the government picks up the bill for nearly all basic research and development, mainly through the National Institutes of Health. Then private industry spends about $25 billion a year on more R&D--essentially taking NIH discoveries the rest of the way to market. The companies mostly do the clinical testing of new compounds for safety and effectiveness, then win regulatory approval for the new applications. This is one instance where a bigger role for government, by taking charge of the scandalous pricing system, could produce vast savings for the public--as much as $50 billion to $75 billion a year.

The National Institutes of Health and independent scientists working with NIH grants generally do the hard part and take the biggest risks, yet there is no system for sharing the drug companies' subsequent profits with the public treasury or for setting moderate prices that don't gouge consumers. Instead, the drug industry reaps revenues of $106 billion a year, claiming that it needs its extraordinary profit levels in order to invest heavily in research. The companies are granted exclusive patents on new products for seventeen years (or longer if drug-company lobbyists persuade Congress to extend them). Meanwhile, the manufacturers collect royalties (and less profit) on the very same drugs under licensing agreements with Europe, Canada and other advanced nations where the governments do impose price limits. Thus, Americans pay the inflated prices for new medicines their own tax dollars helped to discover--while foreign consumers get the break.

Years ago, although reform was mandated by law, NIH abandoned its efforts to work out a system for moderating US drug prices--mainly because the industry refused to cooperate and had the muscle in Congress to get away with it. Now that soaring prices have inflamed public opinion again, Dean Baker of the Center for Economic and Policy Research proposes a more radical solution. NIH should be given control over all drug-research policy, Baker suggests, and Congress should put up public money to cover the industry's spending (probably less than $25 billion because marketing costs get mixed into the research budgets as well as money spent to develop copycat drugs, which are medically unimportant). The exclusive patent system would be phased out, perhaps starting with cancer drugs and other desperately needed medicines whose prices are too high for poor nations to afford. For $25 billion or less in new public spending, brand-name drugs would largely disappear, but, Baker estimates, prescription costs for Americans would shrink by as much as 75 percent overall.

A less drastic solution, suggested by James Love of Ralph Nader's Consumer Project on Technology, would limit use of exclusive patent rights and, if needed, compel drug-makers to grant royalty licenses to other US companies to make and sell the same medicines, thus fostering price competition. Competing companies would be required to contribute a minimum percentage of revenues to R&D to maintain research spending levels. The government could also require companies to help fund government or university research.

The prescription-drug debate of Election 2000 is a long way from either of these visions for reform, but events may lead the public to take them seriously. Drug prices are inflating enormously. If Congress fails to make it legal, the bootlegging of cheaper medicines from Canada and other countries where the prices are controlled is bound to escalate, and the present system might break down from its own lopsided design. As a matter of public values, the discovery of new health-enhancing medicines ought to be shared as widely--and inexpensively--as possible, especially since public money helped pave the way to these discoveries. Jonas Salk never sought to patent his polio vaccine. He thought his reward was knowing how greatly his work had advanced all of humanity.

Who says this is a do-nothing Congress? Sure, it can't agree on expanding the childcare tax credit or approve an increase in the minimum wage. Yet, as Congress prepares to adjourn, legislators were rushing to protect and expand tax subsidies for some of the largest, most profitable corporations in the world. Under current law, US exporters can set up largely paper presences in foreign tax havens like Barbados. The exporters can then exempt between 15 and 30 percent of their export income from taxes by routing products through these entities, called Foreign Sales Corporations. In a recent case filed by the European Union, however, the World Trade Organization ruled that the FSC tax break was an illegal subsidy.

Precedent has shown the United States more than willing to bend to the will of the WTO. For example, when the WTO ruled against an Endangered Species Act protecting sea turtles, the United States quickly eased its regulations. Yet when a multibillion-dollar tax incentive is at stake, Washington falls all over itself to protect corporate welfare.

Immediately after the WTO ruling against FSCs, the Clinton Administration, a few members of Congress and the business community began meeting in secret to work out a bill that eliminates FSC in name only while actually expanding export subsidies for a total cost to taxpayers of about $4 billion a year. The beneficiaries? General Electric, Boeing, Raytheon, Cisco Systems, Archer Daniels Midland and others. The House approved this bill with only forty minutes of debate and no amendments allowed, by a vote of 315 to 109. The bill was held up in the Senate because some objected to the tax break for arms manufacturers and subsidies for tobacco exports. Despite the objections, the bill is expected to be tacked onto a must-pass budget bill and signed by the President.

The proponents of this giveaway claim it will promote US jobs. However, the Congressional Budget Office, whose director was appointed by Republicans, has written, "Export subsidies do not increase the overall level of domestic investment and domestic employment.... In the long run, export subsidies increase imports as much as exports." The nonpartisan Congressional Research Service reached a similar conclusion.

It gets worse. The tax break may actually subsidize moving US jobs overseas. There is no requirement that a substantial portion of a product covered by the subsidies be made with US content or with US labor. An Administration official said that an eligible product could have "little or no US content" and still qualify.

Not only is the legislation not economically justifiable, it is not likely to comply with the WTO ruling. The EU has already stated that the changes aren't adequate, and it intends to seek authority to retaliate by imposing 100 percent tariffs on some $4 billion worth of US goods.

I am not a fan of the WTO. It is an unaccountable, secretive, undemocratic bureaucracy that looks out for the interests of multinational corporations and investors at the expense of human rights, labor standards, national sovereignty and the environment. But by pointing out that export subsidies like FSCs are corporate welfare, the WTO has done US taxpayers a favor. It has once again highlighted the fact that US trade policy is written by and for corporations, with no concern for workers, human rights or environmental protection.

While the differences between George W. Bush and Al Gore may still be coming into focus for many Americans in the final weeks before the election, one is already stark. On tobacco, the leading cause of preventable death in America, Bush would return the nation to the failed laissez-faire attitudes of the past. A Gore administration could be expected to continue the course charted by President Clinton, the first truly anti-tobacco President.

Indeed, a Bush administration would solve so many of tobacco's problems that the Texan is virtually one-stop shopping for an industry that has drenched his campaign with cash. For one thing, he'd change the civil justice system. Clinton vetoed tort reform bills, but Bush has made such "reform" a keystone of his proposed social policy and points with pride to his record in Texas--in 1995 he placed draconian restrictions on the right to sue. Bush would help mitigate the fallout from the recent $145 billion verdict in the Engle lawsuit--the Miami class action on behalf of thousands of Floridians sickened by cigarettes--by signing a bill pending in Congress that would send all class actions to federal court. There, Engle would be decertified, downgraded into a handful of individual lawsuits, long before trial by a federal system hostile to tobacco class actions.

As to regulating cigarettes, Bush would likely work with a Republican Congress to enact a "compromise" regulation law, limiting some forms of tobacco marketing and granting toothless federal oversight in return for liability limits and giving tobacco a seat at the table of any regulatory process. Bill Clinton was the first President to make the regulation of tobacco one of his signature policy initiatives. Although the Supreme Court ultimately shot down Food and Drug Administration oversight of cigarettes, Clinton used the bully pulpit of the presidency to put tobacco on the national agenda in a way it had never been before, fulminating against the industry for peddling nicotine to children.

Bush's record indicates he would pay lip service to keeping kids off cigarettes but would put much more energy into vilifying plaintiffs' lawyers for getting rich from lawsuits that attack the industry for targeting children. Bush has pledged to kill off a multibillion-dollar RICO action by the Justice Department that charges that the cigarette companies concealed their product's deadliness, and he would likely rescind or stymie numerous Clinton executive orders, nascent regulations and programs dealing with everything from secondhand smoke to funding research on Big Tobacco's internal documents.

Finally, Bush would be likely to back incursions by domestic cigarette makers into foreign markets. He would be much less disposed to sign on to a proposed World Health Organization treaty on tobacco and health and very prone to weaken it, to the benefit of a global tobacco industry now menacing Asia, and to the detriment of millions of potential new smokers who will become victims of cigarette-related disease.

Only months after a major victory on China trade, Big Business is again scavenging for cheap labor. This time, the high-tech industry is pressuring Congress to allow additional foreign technicians--particularly computer programmers and engineers--to work temporarily for US corporations. Congress, with the President's blessing, is poised to deliver a sweet deal to the industry, at the expense of US and foreign workers.

The 1990 Immigration Act set aside 65,000 H-1B visas each year to allow "the best and the brightest" from around the world to work in the United States for up to six years. In 1998, when the high-tech industry complained about an unbearable shortage of skilled US workers, Congress raised the annual H-1B ceiling to 115,000. The industry promised it was a one-time solution. But tech companies devoured the visas. Now their Washington lobbyists claim they are still starving for qualified workers.

Such evidence as exists, however, casts doubt on the alleged labor shortage. A recent study by the IT Workforce Data Project concluded that over the past fifty years, "there is no evidence that any serious shortages of technical professionals--engineers in the past, information technology specialists now--have ever occurred." If the industry faces a tight labor market, it's self-imposed. The industry has largely ignored its vast underrepresentation of women and minorities. Few tech firms recruit at African-American job fairs, and less than 1 percent of blacks with high-tech degrees have Silicon Valley jobs. The corporations also often shun older workers, who might require retraining or better pay.

The tech industry craves cheap labor, not skilled workers. H-1Bs, which are temporary and prohibit the holder from switching employers, fill the bill. H-1B workers cannot unionize, are likely to accept uncompetitive wages and do not receive the employment benefits that similarly skilled Americans would demand. Many companies reportedly force their foreign employees to work in factorylike conditions and routinely withhold wages and violate contracts. Foreign workers, dependent on their jobs for legal residence in the United States, are defenseless: If they complain, they risk being fired; if they quit, their employer can sue them. Their only legal remedy is a bureaucratic federal complaint process with few enforcement options. These foreign temps--indentured servants of the new economy--can either put up or go home.

Nonetheless, Bill Clinton, Congress, Al Gore and George W. Bush support raising the H-1B ceiling to approximately 200,000. Why? The computer industry alone has pumped more than $72 million into federal campaigns. Orrin Hatch and Spencer Abraham, sponsors of the Senate's leading H-1B bill, have received nearly $1 million in high-tech campaign contributions. David Dreier and Zoe Lofgren, authors of the industry-endorsed House legislation, each enjoy tens of thousands in Silicon Valley funding. Other powerful legislators have also profited handsomely from cooperating with Big Technology.

The industry is reminding its political welfare recipients that expanding the H-1B program is a top priority for the nation's tech firms. Their lobbyists are meeting one-on-one with politicians and are barraging Capitol Hill with daily "fact sheets." Chairmen of House and Senate campaign committees have received letters explicitly warning that tech companies will not support legislators who dawdle on H-1B. With control of Congress up for grabs, opposing the industry hardly seems worth the risk.

Representative Tom Davis, who chairs a GOP campaign committee and supports raising the H-1B ceiling, acknowledged, "This is not a popular bill with the public. It's popular with the CEOs." Once again, powerful corporations and unprincipled politicians are preparing to take advantage of vulnerable foreign labor, while many US workers are left out in the cold.

Activists have achieved power. Now they need to figure out how to use it.

Even as Chase Manhattan prepares to take over J.P. Morgan, the bank's past is returning to haunt it. Recently revealed documents show that Chase, which was already known to have helped the Nazis, aided slavery here at home as two of its predecessor banks worked with an insurance company to insure slave owners against loss. Chase is, as far as can be determined, the first company whose forerunners have been identified as aiding both the perpetrators of the destruction of the Jews in Europe and those who enslaved Africans and their descendants in America.

Chase currently faces a class-action lawsuit filed in the United States by Holocaust survivors and victims' relatives who say their assets were frozen by Chase during World War II. Chase seized bank accounts and safe-deposit boxes from Jewish customers in France and did not return or properly account for them after the war, according to Kenneth McCallion, a lead attorney in the suit. In addition, a Treasury Department report declassified a few years ago concludes that Chase's Paris branch served as a banker for the Third Reich. J.P. Morgan, whose Paris office also worked closely with the Germans, is named in the lawsuit as well.

About a hundred years earlier, two US banks that were later taken over by Chase were described in an 1852 information circular as servicers of insurance policies issued on the lives of slaves. Titled "A Method by Which Slave Owners May Be Protected From Loss," the circular, put out by the National Loan Fund Life Assurance Company of London, describes, among others, The Merchants Bank and The Leather Manufacturers Bank, both of New York, as having the legal authority "to accept risks, adjust and pay claims." The Merchants Bank merged in 1920 with The Bank of the Manhattan Company, which in turn merged with Chase in 1955, according to the New York State Banking Department and Chase's website. The Leather Manufacturers Bank merged with The Mechanics National Bank in 1904, which then merged with Chase in 1926.

Deadria Farmer-Paellmann, the lawyer whose research earlier this year forced the Aetna Insurance Company to make a public apology for writing slave insurance policies, uncovered the documents exposing Chase. These revelations are certain to bolster the growing movement for slavery reparations.

The presidents of the two banks are listed on the circular as members of the New York board of directors of the London insurance company. The circular names medical examiners in Virginia, North Carolina and Washington, DC, who were authorized to examine slaves and also offers details about the insurance policies. For example: "A Slave aged 30 years can be insured for $500, for a year, for $11.25; and if he dies, the owner, although deprived of the revenue of his labour...will still not be unrecompensed for his loss; for there will still remain to him--not his Slave--but the $500 which constituted his value...." While it has still to be determined whether the two banks actually serviced any policies for slave owners, the existence of the circular proves that the banks actively sought and were part of such business.

Jim Finn, a Chase spokesperson, said that his organization needs more time to study the circular and related materials before he could comment. Farmer-Paellmann, who is continuing her research, said, "My hope is that if archival records show that policies were written, then Chase will apologize for helping to maintain that crime against humanity and pay restitution into a trust fund to benefit heirs of Africans enslaved in America."

In early September Chase agreed to permit an investigator who had probed Swiss banks for their Holocaust-era activities to review its records to determine how Chase had helped the Nazis. Chase should immediately open its archives to slavery researchers as well. Only then will a full record be available to determine what reparations, if any, should be paid.

A federal court has ruled that Microsoft is a predatory monopolist and, stunningly, that the company should be broken into two parts. But the Microsoft opinion is the handiwork of one federal district court judge. Appeals lie ahead, and at the end of the road is the Supreme Court. The current Supreme Court majority has been reluctant to interfere with business conduct other than price-fixing. If George W. Bush should win the presidential election and appoint one or two Supreme Court Justices, we can expect yet more erosion of the antitrust landscape.

The Supreme Court once championed antitrust laws as valued tools to limit corporate power and to promote the autonomy, diversity and economic rights of people and firms without power. But the message of contemporary opinions is quite the contrary: Trust business, not government. It is fair to worry whether the Rehnquist Court has handed big business the license to do as it will, and if not yet, whether appointments by George W. Bush would complete the handover.

In one notable case, Liggett & Myers challenged the tobacco oligopoly by introducing low-priced generic cigarettes. In response, Brown & Williamson introduced a fighting brand, which it sold below cost to selected distributors for eighteen months for the sole purpose and with the effect of blunting Liggett's competitive challenge. Liggett sued for discriminatory and predatory pricing. A split Supreme Court threw Liggett's suit out. The strategy may have been unfair to Liggett, the Court said, but the antitrust laws have nothing to do with fairness, and price wars are good for consumers.

In the Microsoft case, District Judge Thomas Penfield Jackson declared Microsoft a predatory monopolist whose conduct has forestalled innovation and "trammeled the competitive process." Microsoft appealed from Jackson's judgment and confidently predicts a reversal. That confidence is not without some basis. The case will be heard either directly by the Supreme Court or, at the Supreme Court's choosing, by the Court of Appeals for the Washington, DC, Circuit, which two years ago overturned Judge Jackson's ruling that Microsoft's bundling of its web browser with its operating system probably violated a 1995 consent decree. Judge Jackson's final opinion in the current case documents Microsoft's predations in copious detail: its unremitting course of conduct and use of leverage to eliminate innovation that threatened to destroy Microsoft's operating-system monopoly.

When the Supreme Court hears the case, it is likely to find difficult questions of law: What standard applies to high-tech, fast-moving markets where a competitor's innovation can (in theory) wipe out a monopolist's power with sleight of hand? Indeed, can we even conceive of Microsoft as a monopolist when it faces the constant threat of technological obsolescence? Should courts or inventors/sellers decide whether browsers and operating systems are two products (and subject to the law against tying) or one integrated product and entitled to the deference of the judge? Should antitrust recede in the face of globalization and the unpredictable forces of technology? But note how even the formulation of the question is likely to inform the overall outcome. Is the real question whether Microsoft violated the law by strategies designed (and certain) to block rivals rather than serve computer users? Is the real, overarching problem: Whom should we trust--Microsoft or courts? Microsoft or antitrust law?

To complicate matters, politics has reared its head. The battle has spilled over to the Congressional arena and the race for the presidency. The country that prides itself on the rule of law could fall prey to the rule of money and the race for hegemony in the global economy. George W. Bush has already announced that he is not too fond of the antitrust laws, apart from the law against price-fixing. Microsoft has made huge contributions to both major campaigns, and it promises more to come. And Microsoft has, unsuccessfully, lobbied Congress to cut off the budget of the antitrust division of the Justice Department if it insists upon continuing its litigation against Microsoft.

But most significant is a President's power to appoint Justices to the Supreme Court. On the Court today there are Justices committed to upholding antitrust and Justices committed to chipping away its foundations. Justices John Paul Stevens and Antonin Scalia stand at opposite ends of the spectrum. Justice Stevens has an abiding concern about uncontrolled private power and is determined not to allow further erosion of the laws meant to control it. Justice Scalia has an abiding hostility to economic regulation and a resolve to minimize antitrust to protect "rational" private actors from "the sledgehammer of §2 [the monopoly law]." Scalia fears the power of government and never sees the power of business. Justice Stephen Breyer, a world expert in antitrust and economic regulation who has never been accused of antitrust populism, is the natural future voice for antitrust on the Court, but even Justice Breyer has been relegated to being a voice of dissent. On appeal from a Federal Trade Commission ban on California dentists' rules against discount advertising, Justice Breyer urged his colleagues to respect FTC findings and not to impose new burdens on antitrust plaintiffs, but he failed.

The Court is in delicate balance in matters of business power versus consumers. One or two Supreme Court appointments can make the difference.

Jeremy Rifkin wants to rock the world of the jaded reader: He predicts that we're entering a completely new--the final--stage of capitalism.

So Ford now says the SUV
Is very bad for you and me.
It slurps gas to a fare-thee-well,
And makes the earth as hot as hell.
Its weight means any car it hits

In a small brick house strung year-round with Christmas lights, behind curtains made of flowered sheets, Jeremiah Smith is listening to his favorite preacher on the radio.