Book Reviews

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN The Future of Business Regulation MURRAYL. WEIDENBAUM,who is Di rector of the Center for the Study of American Business at Washington University in St. Louis, doesn't go so far as to say that government inter vention in business is unnecessary. His message, in a horrifying little book, The Future of Business Regu lation (Amacom, a Division of American Management Associa tions, 135 W. 50th St., New York, N.Y. 10020, 183 pp., $12.95), is sim ply that we can get too much of a good thing. This is a subtle study of the law of diminishing returns-indeed, the law of negative returns-as it applies to those well-meaning peo ple in Washington and fifty state capitals who seek to save us from ourselves. Nobody in his right mind wants to die in an industrial acci dent, nobody wants to get cancer from the circumambient air or strangle on carbon monoxide, and nobody since the legendary King Mithridates has relished poison in 58 his food. But when the costs of regu lation deprive every family of four of $2,000 a year, which is the Weiden baum claim, most people would be happy to save the money and to trust their own common sense to minimize the risks they must en counter in their daily living.

Despite his prodigious feats of cost-benefit analysis and quantifica tion, Mr. Weidenbaum doesn't set any minimal standards for regula tion. He deals in trajectories. In fis cal 1974 the budget to run the vari 0us federal regulatory bureaus was $2.2 billion. In fiscal 1979 this had jumped 115 per cent to $4.8 billion. There was, of course, the general inflation, but, as Mr. Weidenbaum observes in his deadpan manner, ((there are few parts of the private sector that have recorded such gains in the same five-year period." Regu lation, he adds, has ((becomea major growth area of the American econ omy." The 115 per cent jump in federal THE FUTURE OF BUSINESS REGULATION 59 regulatory costs in five years was largely due to the passage of twenty-five new Congressional acts and amendments to older acts. One wonders just who has had his well being improved to any considerable extent by any of this Congressional solicitude. Do we have any more energy because of the Energy Policy and Conservation Act? Weren't toxic substances under firm control before 1974? Couldn't the separate states be trusted to handle surface mining control or fair market practices in transactions between oil companies and their dealers? Why did the minimum wage have to be raised in the very five-year period that had seen such an increase in black teenage unemployment? And why should Washington be concerned about levying fines for <tbusiness payments abroad," meaning money spent on meeting the customs of countries whose sense of morality differs from our own?

A Lower Standard of Living In short, what do we get out of it all? We get a lowered standard of living, for one thing. Innovation in pharmaceuticals passes to other countries. Research and develop ment money flows into defensive channels. Says the head of the Gen eral Motors Research Laboratory, Hwe've diverted a large share of our resources-sometimes up to half into meeting government regulations instead of developing better materials, better manufacturing techniques, and better products .... It's a terrible way to waste your research dollars." The Dow Chemical Company, in 1976, figured that its expenses in complying with federal regulations came to $186 million, a twenty seven per cent jump from the 1975 total. A little more than half of the compliance money could be justified as necessary for the safety and pro tection of workers, customers and the general public. But the rest was either duplicative or simply Hbeyond good scientific manufacturing, busi ness, or personnel practices," which is a nice way of describing stupidity.

Beyond the costs of compliance Dow has a story to tell about the costs to the community in expansion that is forgone. Dow had plans for a $300 million petrochemical complex in California to meet West Coast demands for the company's goods and services. After spending $4 mil lion Hfor an environmentally sound project," the company decided it couldn't afford to waste any more money threading through «the regu latory red tape maze." It's the same sort of story in cop per. According to an Arthur D. Lit tle company study, new pollution control regulations will add from twenty-three to thirty-nine per cent to copper prices, and cut smelter production around twenty-five to 60 THE FREEMAN January thirty-three per cent. Copper im ports will jump by eight per cent. The air will be cleaner, of course, but it will be cleaner mostly in areas that are quite capable of absorbing pollution without damage to indi viduals.

Environmental Problems In a lot of instances of our concern for environmental perfection, regu lation merely serves to shift the na ture of pollution. In compliance with the law, the Pennsylvania Power Company added scrubbers to its new 825-megawatt complex. The scrub bers take the pollutants out of the coal, all right, but the by-product is 18,000 tons of sludge a day. To con tain the sludge, the company has had to build a 350-foot-high dam, eethe largest earth and rock em bankment east of the Mississippi River." And the lake behind the dam, a lake of gook, already covers 900 acres of once picturesque coun tryside. When the Labor Department pro posed some new noise standards in steel. mills, the steel company ac countants sharpened their pencils. They figured that the cost of estab lishing controls that would satisfy OSHA inspectors would come to $1.2 million for each affected steel worker. For a mere $42 per em ployee, the companies could provide ear protectors ($10), noise monitor ing ($12) and audiometric testing ($20). Some of the money saved could go for higher wages, some of it could go into needed capital forma tion to make more steel jobs for more people wearing ear protectors.

Alternatives Mr. Weidenbaum would like to see Congress require economic im pact statements before new regula tory bureaus are created and new laws passed. He would like to see the federal government imitate the state of Colorado in adopting so called sunset laws that would force periodic reviews of the functions and the budgetary demands of agencies. Pollution taxes might be adopted, and fees might be charged for dis charging effluents. This would force industries to do their own pollution monitoring. It would not only con tribute to a healthier environment, it would also lighten the bureaucrat ic payroll in Washington. What is needed most of all is a return to a little common sense. Mr. Weidenbaum paints an amusing pic ture of a man going to the. bathroom in the morning and mildly losing his temper trying to open a bottle of aspirin which has the child-proof cap required by the Consumer Prod uct Safety Commission. Personally I doubt that this would happen more than once-the alternative, which is to throw the child-proof cap into the wastebasket, is all too easy. It takes less effort to stow the aspirin bottle 1980 THE FUTURE OF BUSINESS REGULATION 61 on a top shelf out of a child's reach than it does to put the cap back on.

What we need is a Congress that will stop treating people like idiots. But if idiots continue to elect Con gressmen, what can we do? Ii AMERICAN ETHNIC GROUPS edited by Thomas Sowell (The Urban Institute, 2100 M Street, N.W., Washington, D.C. 20037) 249 pages. $7.50 Reviewed by Allan C. Brownfeld WHY have some racial, religious and ethnic groups advanced rapidly in the American society while others have progressed economically and educationally more slowly? Are some groups inherently superior, or is there something in the back ground of each which may account for both successes and failures? This study is the product of re search conducted at The Urban In stitute from 1972 to 1975 under the direction of Thomas Sowell. Dr. Sowell is a widely respected black economist and the author of a num ber of important books, including Race and Economics, a landmark study of the impact of race upon economic advancement in the American society. He is an advocate of free enterprise and believes that through the working of the market blacks will progress as have the var ious immigrant groups which pre ceded them to urban America.

Of the dozen or so groups that were examined, six were selected for special emphasis: those with black, Chinese, Japanese, Irish, Italian or Jewish background. These groups, writes Dr. Sowell, ((are all minorities, they share many aspects of the immigrant experience, al though only blacks suffered the bur den of slavery; and all have faced exceptional barriers and experi enced frustration in achieving economic and social mobility. One of the chief structural concepts im plicit in this study is that the evolu tion of minority immigrant groups proceeds in parallel continua, in the course of which each group experi ences similar developments, al though not necessarily at the same time, with the same intensity, or in exactly the same way." In an essay concerning black Americans, Sowell discusses three separate and distinct categories: (1) Those ufree persons of color" who were emancipated before the end of the Civil War and in 1830 consti tuted 14 per cent of the American Negro population; (2) The largest component of the American Negro population, those blacks emanci pated after the Civil War and their descendants; and (3) Black immi grants, primarily from other parts of the Western Hemisphere, and espe62 THE FREEMAN January cially from the British West Indies.

Many traditional myths are shat tered in this study. Dr. Sowell de clares, for example, that, ((Despite a large literature which has repeated, without evidence, the theory that slavery was responsible for broken or matriarchal homes among American Negroes, it was precisely among freed slaves that the highest incidence of two-parent families was found in mid-nineteenth century Philadelphia and it is only in a much later era that the incidence of broken homes in urban ghettoes reached unusually large propor tions." Figures show that a similarly high rate of broken homes may be found among other, nonensla ved groups, such as the Irish in an ear lier era, and Puerto Ricans and Mexican-Americans today. The West Indians are of particular interest because their rate of prog ress in the U.S. has been far ahead of that of native-born blacks, indi cating that race has not been the key factor. Dr. Sowell writes that slavery in the West Indies differed significantly from that in the U.S.

because, ((instead of a minority of blacks surrounded by a larger white society, the West Indies has long been a place with an overwhelm ingly black population .... The West Indian plantation could not draw upon a larger white society for its economic needs, and in fact mem bers of the enslaved black population grew their own food individ ually, and sold the surplus in the market off the plantation. Unlike slaves in the U.S.... slaves in the West Indies were assigned individ ual plots of land in which each fam ily grew its own food. In short, even during the era of slavery, black West Indians had generations of ex perience in individual reward for in dividual effort ... also, the virtual absence of a white working class meant that (free persons of color,' and later the whole free black popu lation, could not be restricted to the most menial occupations, as in the U.S., or the more skilled and more responsible positions would have gone unfilled .... The whole West Indian experience followed a pattern reminiscent of European immi grants rather than the pattern of their native black contemporaries."

In an essay concerning Chinese and Japanese immigrants in the U.S., William Petersen points out that the gross discrimination and collective frustration to which these groups were subjected ((ordinarily result in a pattern. of poor educa tion, low income, high crime rate and unstable family life.... However, these two minorities themselves broke through the barriers of prej udice and, by such key indices as education and income, surpassed the average levels of native born whites. This anomalous record, like the ear lier one of Jews, challenges the 1980 OTHER BOOKS 63 premises from which the etiologies of poverty, crime, illegitimacy and other social ills are typically de duced. That discrimination is evil in itself is beyond question . . . the question is whether even the most debilitating discrimination need in capacitate a people if it is not rein forced by other pressures." Dr. Petersen writes that, ~~Like Negroes, Orientals got few loans from regular banks; but unlike Neg roes, they used traditional institu tions to amass the capital needed to establish small businesses. One sys tem has worked more or less like a building-and-Ioan association: sub scribers paid in regularly, received interest for their deposits, and were eligible for interest-bearing loans when they needed them .... "

During World War II, the Japanese were placed in internment camps and lost most of their property-losses estimated at more than $400 million in 1940 dollars. ~~One might have anticipated that the camp inmates would succumb to bitterness and apathy. Instead most lived out the Japanese proverb, ~Six times down, seven times up!' ... For both Chinese and Japanese,. the self-discipline of individuals was supplemented by various types of their own organizations designed to further their joint efforts." Discussing the European immi grant groups, and the reasons for swift Jewish advance and much slower advances by other European groups, particularly the Roman Catholic Irish and Italians, Alice Kessler-Harris and Virginia Yans-McLaughlin note that, ~~When choices had to be made, such groups as Italians, Irish and Poles would sacrifice the educational interests of their young, withdrawing them from school, sending them to work, absorbing their earnings. Such deci sions increased present earnings at the expense of future skills. Jews do not seem to have made similar compromises Jewish mobility is legendary Seventy-five per cent of the sons of Jewish immigrants had moved up to middle class status by 1950, an almost exact reversal of the proportions among Italians. . . .

Religious tradition and community approval encouraged the Jew in America to invest in education and correspondingly to increase his up ward mobility. No other group had this advantage .... By 1953 ... while one in every 20 Americans had com pleted college, one in every six Jews had done so." The· authors point out that every group which has been successful has ~~come from a cohesive community, one characterized by concerned par ticipation in religious institutions, charitable enterprises and self-help groups." They also point out that political power and economic ad vance have little relationship to one another. ~~Irish political acumen, as 64 THE FREEMAN evidenced in the big city political machines of New York, Chicago, and Boston, was not translated into mobility for the ethnic group. . . . The Boston Irish who had political control of that city from the 1880s on, were twice as likely as any other group, native or foreign, to be low level manual workers in the 1890s."

This study challenges the idea that discrimination causes poverty, crime and other social problems. The dramatic advance of black West Indians, Japanese, Chinese, Jews and others indicates that far more is involved in achieving economic suc cess. Those who seek to correct so cial problems by interfering in the workings of the free market-the same market which enabled all of these other groups to succeed as a result of their own efforts-are mis reading the problems we face. A free society rewards hard work, self discipline, respect for education, and self-help. How to imbue those who do not share these values with 'such an approach to life is our real prob lem. It cannot be done by one or another ofthe ~~Wars on Poverty" we have entered into. ® HANDSOME BLUE LEATHERLEX FREEMAN BINDERS $3.00 Order from: THE FOUNDATION FOR ECONOMIC EDUCATION, INC. IRVINGTON-ON-HUDSON, NEW YORK 10533 the Freeman VOL. 30, NO.2. FEBRUARY 1980 The Crisis of Our Age Norman S. Ream 67 How to combat the moral disintegration of our time.