The Art of Regulating Trade

THE OPEN MIND
Host: Richard D. Heffner
Guest: Michael Pertshuk
VTR: 6/6/84

I’m Richard Heffner, your host on The Open Mind. Deregulation was a major Ronald Reagan campaign slogan in 1980, and the man who served under Jimmy Carter as Chairman of what had been America’s premier regulatory agency the Federal Trade Commission, had written about how long a goodly number of Mr. Reagan’s regulators have now spent dismantling the very regulations that in prior incarnations as corporate lawyers and lobbyists they has opposed. Their deregulatory plows are fueled by an admixture of free market ideology and corporate sycophancy. Consumers are merely bugs on the windshield. And yet former chairman Michael Pertshuk, still a member of the FTC, feels strongly that the consumer movement which so vigorously fostered governmental regulations is far from dead. And perhaps he even feels that deregulation has now run its course. Let me ask you that question. Do you think it has?

PERTSHUK: Well, not entirely, Richard. The problem of course is that deregulation is a term that encompasses a lot of different schemes, some of them sound and a response to public concern about over-regulation. And for some tactics and strategies of, particularly of the Reagan administration, deregulation has really been an umbrella for destroying regulations which protect the public and which the public really cares deeply about.

HEFFNER: Do I understand then that you have some, oh, some basic sympathy with some parts of the deregulatory movement?

PERTSHUK: Yes, absolutely. I mean, no citizen in this country is a lover of regulation. I mean, no one likes regulation in the abstract. Certainly the American people don’t. And there clearly were areas and are areas still in which the burdens of regulation and unwieldy regulation and regulation which imposes bureaucratic restraints upon business for example don’t really achieve anything of great value. Regulatory reform, real reform, was something which was overdue. But the campaign against deregulation and the very broad rhetoric has been used to destroy some of the very regulations that are important and that work.

HEFFNER: You say that deregulation was to some extent overdue. And you’re suggesting that it was overdone.

PERTSHUK: Exactly.

HEFFNER: do you feel that the psychological climate that it created, for instance the Reagan campaign against government, against Washington in 1980, do you feel that set in this country a psychology that makes it well nigh impossible to get back on the track of the appropriate amount of regulation?

PERTSHUK: Not at all. I mean, what amazes me is that the American public is very sane and sensible and coherent in its attitudes about regulation.

HEFFNER: Why do you say that?

PERTSHUK: Well, if you take a look at polls – and all of us I guess in government have become poll junkies, for better or worse, but I look at all the polls, and attitudes toward, public attitudes toward business, government and consumer issues – what those polls show, and they show them uniformly and they haven’t changed much over time, is that if you ask an American citizen, “do we have too much regulation?” of course the answer is, “Yes.” On the other hand, if you ask about specific forms of regulation, consumer regulation, environmental regulation, in particular you will find that overwhelming numbers of American people say we need this kind of regulation, we need this kind of regulation to restrain the excesses of business overreaching. And that hasn’t changed. You know, in the mid ‘30s, in the midst of the Depression, when of course government was perceived as the savior, or at least in retrospect we think of government as the savior, a substantial majority of the American public said there is too much government regulation of business. And that’s the way those polls have gone in the ensuing decades.

HEFFNER: Yes, but they didn’t vote that way; and now they are voting that way.

PERTSHUK: Well, I don’t agree. I mean, I don’t agree. I don’t think the Reagan election was based upon a focused public outrage about the kinds of regulations we’re talking about.

HEFFNER: What about the Jimmy Carter election then, which seemed to be also a campaign against Washington, and Washington somewhat synonymous with regulation?

PERTSHUK: Well, I…There’s no question that there is antipathy toward government and disappointment in government. When you see, when you see people’s attitudes toward regulation, one of the things that you see is that people feel that government should give them the rights, protect them not as a national nanny, which the FTC was called in some of its darker days, but give them the rights to be the sovereigns in the marketplace, give them information. The one change – and you’re quite right about suggesting there has been some change – one change which I think is there, and it’s healthy and I support it, is that perhaps in the 60s there was more of a tendency of people to say, “Well, let’s have the government regulate and get rid of bad practices in the marketplace and maybe even rid us of products we don’t like, or regulate to require that products work in a certain way and ban the rest.” More of an inclination to use government as a tool, a heavy-handed tool of what we call command and control regulation. I think what you do see is that people are more inclined to support the regulation that gives them the tools to operate themselves. They want information about product hazards. They want to know for example in food, what it is in food that they may want to avoid, whether it’s high sugar, high fat, high salt. They don’t want the government saying, “You can’t buy Twinkies.” They don’t want that.

HEFFNER: Are you suggesting then – this is a very serious question on my part – that, well, maybe not the extent or the limit of your concern, but that largely you’re talking about truth not just in advertising but truth in the perceptions that are conveyed about the nature of products rather than regulation of those products?

PERTSHUK: Well, largely. I mean, largely that’s so. I mean, obviously there is a history of the fundamental protection of our food, drug and water supplies in this country, and that means you can’t sell products which are adulterated and will kill you, except for cigarettes of course, which still remain a legal product. But for the large part the issues that remain and many of the issues which are being fought out have to do with making sure that people get information and that they can be the masters of the marketplace themselves.

HEFFNER: Do you feel that the push for deregulation was simply a push for limiting regulation to the presentation of information, and removing the regulations upon the creation and production of goods?

PERTSHUK: Well, I think that what we saw was a, historically what I think the deregulatory movement was a kind of coming together of two flows. One intellectual, that is the work done by many of the economists who argued quite properly that a lot of regulation was not really benefiting consumers; but the other and much more powerful in the political process was the reaction against regulation by corporate America. Now, spanning my own experience in Washington in the 1960s, I worked on a lot of consumer laws, new consumer laws. At the same time there were environmental laws growing. And in the ‘60s there was a strong movement, the consumer and environmental movements, and the civil rights movement and others, to fill in what had been perceived as gaps in the fabric of government protection. And in the ‘60s we passed a lot of laws: product safety laws, gas pipeline laws, we banned cigarette advertising from television, we created a product safety commission, we had the Clean Air Act, the Clean Water Act, we had civil rights laws.

HEFFNER: Why do you get excited when you say that?

PERTSHUK: Well, they were good laws. They were good laws for the most part, and they were enforced well. One of the things that happened however is that corporate America, which had been a little sleepy in terms of its lobbying and its Washington presence, believe it or not, in the ‘60s, in a sense was caught off guard. And suddenly they turned around and by 1969 and 1970 to discover that their activity was regulated. And for better or worse, business does not like to be regulated. Whether or not the regulations are excessive or useful. They don’t like it. They want to be left alone. It’s a natural human condition to want to be left alone. But they got their political act together. Beginning in the ‘70s there was a tremendous mobilization, political mobilization of business. And that mobilization took the form of the growth of the business roundtables, the first time that corporate chief executives themselves participated in the political action, came to Washington. And of course, the growth of the political action committees. Growth of money spent on political campaigns by business as well as the actual involvement in political activity by businessmen. I think in fact that the sense that the public is outraged and were roused about consumer and environmental regulation was a perception that was created in Washington in Congress which was not shared by a lot of the public.

HEFFNER: What you say makes me think of so many questions and so many directions to go in. first, I gathered from what you have written recently that you feel that that period, the resurgence of industry through pacts, through an incredibly large number of very smartly, well-directed campaigns, that that push toward deregulation, and perhaps convincing us that the public wanted deregulation, you seem to feel I gather that there’s a shift again and political power may now be exercised by the consumer movement.

PERTSHUK: Well, I think this is something of a restoration of balance. I think that Ronald Reagan may have been the savior of the consumer movement and the environmental movement. Although we don’t have Watt around as a symbol to remind us of what it was we felt we were losing when Watt was Secretary of the Interior. Reagan essentially pointed to two kinds of regulators. There were those who essentially came out of business. There were many of the people themselves who had been lobbying for industry against regulations. Suddenly they were put in charge of enforcing those regulations. That was one kind of Reagan appointee. Another kind of appointee, really the kind we have at the Federal Trade Commission, are really men and women of intellectual honor. They are not in Washington to do the bidding of business. But they are products of a very narrow school of economic thought, the so-called Chicago School. And they really deeply believe that the marketplace will take care of itself, that regulation is the worst affliction that can befall a country. And they really have carried this to extremes. They’ve carried it to extremes of course in limiting regulations on the environment. At the Federal Trade Commission they’ve carried it to such extremes as proposing to congress that congress make it harder for the Federal Trade Commission to police deceptive advertising. The chairman of, my chairman, James Miller, has asked Congress to change the definition of deception in the Federal Trade Commission’s Act so that the commission would have to prove not only that an ad was deceptive as it had been but that actual reasonable consumers not only were misled by it and that they were injured by it. These are technical terms, but what they mean is it would be harder to stop deceptive advertising. Now, if you ask people, the consumers, you ask people in a poll what it is they would like government to do more of, one of the things that constantly appears is, “Get rid of deceptive advertising; police it; be cops on the beat,” which is what the Trade Commission was all about.

HEFFNER: I want to get fro you though an evaluation of what you just state as the philosophical basis of the Miller approach to deregulation. The notion that we’ve had hand on too long, and hands off is required for the economy to grow again. How do you evaluate that?

PERTSHUK: well, you must look at each regulation step by step. I mean, if the commission has fought for example for ten or twelve years to put in place a very simple regulation involving funeral homes, and that regulation essentially says, and you know it’s a product of a lot of history of abuse, where people are really at their most vulnerable in a funeral home. They have very little choice. They can’t pick up the body of their relative and go down the street and comparison shop. They are in a sense at the mercy of the funeral director. And the pattern has been that the funeral director has said, “This is a package of services which we sell and nothing else. You must take the whole thing. All the hearses, the flowers and everything else. You have no choice.” The commission essentially worked – and this is a commission initiative that goes back to the Nixon and Ford commissions – worked on a rule which was very simple, that basically says a funeral director must present a price list of the various parts of a funeral and allow the family to choose those parts of the funeral that they want, and know what the prices are. And it also provided some other fairly minimal rights that a consumer who calls, let’s say a relative is dying, and at least you want to call and see what the costs of different funeral homes are. The funeral director, the funeral parlor must give answers on the phone as to what the prices are. There were congressmen who stood up on the floor of the Congress and said “Over-regulation is destroying productivity in the United States. It’s destroying our ability to compete with the Japanese and destroying the fabric of American enterprise. We’ve got to stop over-regulation.” And the first example they chose was the funeral rule. Well, that’s nonsense.

Now, the fact of the matter is that there is a legitimate concern, and of course you raise it, as to certain kinds of economic regulation and their impact on America’s productivity, the ability of American companies to compete abroad. The antitrust laws are enforced by the Federal Trade Commission. I’m considered a hawk on enforcing the antitrust laws. But the fact of the matter is that I would not bring some antitrust cases, say against a merger between the fourth and fifth largest firms in an industry which was merging in order to become more competitive with say Japanese or German competitors. I would look at the dynamics of that market, I would try and understand whether these kinds of mergers were indeed designed to strengthen productivity, not to suppress competition. And that would make me in terms of the ‘60s or ‘50s an apostate on antitrust law. On the other hand, on the other hand, we have my colleagues in the Federal Trade Commission and the Justice Department’s Antitrust Division essentially saying anything goes. And of course we had a great debate at the commission, and it was an honest debate, about General Motors and Toyota. General Motors being the largest, still the largest domestic manufacturer; Toyota being the largest challenger. Allowing them to join forces to build a small car.

HEFFNER: I appreciate very much the fact that you were willing to, having mentioned the funeral arrangement aspect, the consumer protection aspect, the direct, immediate consumer protection aspect of your work that you do move on to the philosophical question of competition, of combination, etcetera. I remember that it was not the Reagan Republicans back some years ago but the new Democrats who began to feel that the dead hand of government had weighted too heavily, and that indeed government had proven itself to be an incompetent regulator. After all, who regulates the regulator? And I wonder how sympathetic you are with that position or at least with that question: Who regulates the regulators?

PERTSHUK: Well, obviously there must be accountability. I mean, I spent a good deal of my time as Chairman of the Federal Trade Commission reporting to Congress, which contains, which always holds the whip hand in disciplining overzealous regulators. I think you’ve got to look problem by problem. I do think that there’s been a loss of faith in the capacity of government to do things useful. But it’s a destructive loss of faith because the fact is that only government can really represent the broad public interest. And indeed if you abandon government, if you abandon government, then you really end up in a jungle. It’s interesting that when the new Federal Trade Commission proposed to relax standards of discipline, the standards of truthfulness in advertising. It was not just the consumer groups that complained, but a number of the most prominent business organizations that complained. I remember a letter from the vice president of General Foods to the chairman, reacting to his suggestion that maybe we didn’t need, we didn’t need a strong government hand ensuring truthful advertising or truthful complaints. And his letter was really a feeling letter. He said, “Don’t send us back to t he jungle. Don’t send us back to the jungle.” That of course was the matrix. The jungle is what produced government regulation. There must be some kind of balance. But especially you’ve got to look instance by instance at whether this particular regulation is need, whether it’s useful, whether it works, and whether in its absence people are going to get exploited.

HEFFNER: Well, you talk about the jungle. And in an article last year that you wrote in The New York Times, you said, “Fairness and truth, whether in advertising or in personal relations, are not merely the basics of efficient marketplace transactions. They are the essence of civil relationships in an interdependent society.” When you wrote that I couldn’t quite tell whether you were saying we must enforce this approach or whether you were saying that, taking basically, essentially a Lockeian position that life in the state of nature really isn’t that bad and that human instinct favors cooperation. And if you did feel that way, whey the heavy hand?

PERTSHUK: Well, of course I do not favor the control of each in noncommercial areas. I mean, we’re talking about a market system. A market system, which is really the fundamental base of our economy, is a very powerful system. The great political scientist Charles Lindbloom described a communist system as “all thumbs and no fingers.” And indeed we know that. We know that’s so. We know that competition, that a free market really does work because it provides enormous incentives for firms to compete with each other and that competition produces efficiencies, it produces benefits for consumers. But those incentives are so powerful that they lead businessmen inevitably and without evil intent to cross over the boundaries that govern their behavior in other areas. It leads businessmen to lie a little bit, to cut corners in their advertising, to cut corners in the sale of their products. There are very few market incentives to make new products as safe as they might be. And to some extent the best businessmen, those who are the most conscientious, recognize that they need a base, they need minimum rules and standards by which all can compete, so that they won’t be forced to compete by lowering the level of integrity of their products and the way in which they market.

HEFFNER: Well, you’re looking for measure, or you’re looking for balance in this respect; but wasn’t there the feeling that in the ‘60s the regulatory movement itself had gotten out of control and that the question was either you have imbalance on the side of the free enterprise system or you have imbalance on the side of regulation?

PERTSHUK: Well, there may have been that feeling. But the truth is that business has always had a very strong voice in the way in which government is shaped in this country. I mean, business has not been silent. And I fought through many of those battles in the ‘60s, whether it was for truth in lending or for product safety. And those laws did not give the government czar the power to remove products arbitrarily. They were fairly measured laws. And the lobbyists for business were there working very hard to make sure that they could live with them. And so I’m not…I tell you what I think did happen, and that is not that there were individual laws either environmental or consumer, which in themselves were excessive; but it is true that the simple answer, if there’s a problem, pass a law or a regulation, was one we came to too quickly. And so the layers of regulation, each one perhaps just and needed, and that some layers of regulation which built up, and the government agencies which enforce them did become too heavy. And so it became appropriate to begin to ask the question: Do we really need this extra regulation? Can we, should we not concentrate on those things which are essential and leave to the individual consumer, the informed consumer, the decisions which are appropriately left to the marketplace?

HEFFNER: You obviously reject the notion that once you get on the slippery slope the zealism or the zeal that goes into putting layer upon layer upon layer of regulation upon an industry, that we can avoid that, that it isn’t necessary.

PERTSHUK: Well, I don’t think it really, I don’t think it really was happening. I mean, the fact of the matter is that we rely upon business for fundamental roles in our society, not only to produce goods but to produce jobs. And when business cries out that it’s being oppressed, there are many who hear it.

HEFFNER: When – I don’t know whether this is a fair or unfair question, but I’ll ask it anyway and you can say what you will – when you look back at your years as Chairman of the FTC, not as a member now, are there areas where you feel that your zeal for regulation perhaps overcame what you would now look back upon as a more moderate, more acceptable position?

PERTSHUK: Oh, absolutely. I think I made a serious mistake and led my colleagues into a serious mistake. When we approached the area of children’s advertising on television, which I felt very strongly about and many groups have been complaining bitterly about, the fact that four and five-year-olds were really making the target of very aggressive advertising campaigns, in many cases for foods which were really, which really led them into very poor nutritional habits and caused substantial health problems, that the commission proposed, actually the commission opened up a rule-making proceeding in which it considered as one element of a possible rule a ban on all advertising to children. That was a serious mistake. It was a serious mistake because bans on any form of speech, no matter how intolerable the speech, don’t sit well with the American public. In fact, as a civil libertarian or what I consider to be a civil libertarian I’m troubled by that too. More important than that it gave the industries an opportunity to say, “this is a government agency which wants to be the national nanny.” There are other forms of approaching that issue, other forms of regulation which would have been less offensive to a society which believes in individualism. Besides that, looking back, a major change like that ought to come from Congress rather than from, as we’ve been called, unelected bureaucrats. So that was a case of over-reaching, and it probably hurt the commission in ways beyond that.

HEFFNER: Are you saying that it was a tactical error?

PERTSHUK: Yes, a tactical error. I think that the issue is a very serious one, a legitimate one. I think that as a nation we really should be ashamed of ourselves in terms of using very young children as part of the commercial system for exploitation. There’s no excuse for it. No other civilized country does it. But it was not appropriate for a federal regulatory agency to bite off that kind of attack on of course a fundamental economic institution.

HEFFNER: Would you now, if you were in the Congress, either as an elected congressman or senator or staff person, would you push for the introduction of such legislation at this point?

PERTSHUK: I probably would not push for a ban, but I certainly would challenge the way in which broadcasting serves young people. And that includes not only the overcommercialization but the dreadful fare of television which our children are subjected to. I mean, Newsweek called children’s television the national disgrace. And Newsweek is not one of your more radical magazines. I think something should be done to do it. But I would not use a heavy-handed ban approach. There are others. There are others that might achieve the same goals.

HEFFNER: What do you think is going to happen – we have just a short time left – what do you think’s going to happen to the role of the FTC now?

PERTSHUK: Oh, of course a lot depends upon the election. And if Reagan is reelected the agency will…My predecessor has called the FTC’s early years a reign of terror. I think that’s an exaggeration. I think what we’ve seen now under Reagan, and I don’t think it’s an exaggeration, is a reign of terror. The commission is just not doing its job of enforcing the laws, the consumer protection and antitrust laws. And that will continue and get worse.

HEFFNER: Do you think that will be balanced by the consumer movement?

PERTSHUK: We began to see some balance after the last election. Congress began to challenge the commission’s abdication of its responsibilities in a very aggressive way. And even a Reagan commission begins to respond when Congress is angry.

HEFFNER: And you do feel that the consumer movement is gaining strength now?

PERTSHUK: I do. I think the public interest advocacy, groups around the country banding together, participating in the political process, showing their congressmen that they’re angry at those congressmen who take money from this pack and that pack and vote for special interests. I think there is an uprising. And I think it showed itself in the last election, and I hope it shows itself in the next.

HEFFNER: Commissioner, thank you very much for joining me today.

PERTSHUK: Thank you.

HEFFNER: And thanks too, to you in the audience. I hope that you will join us here again next time. Meanwhile, as an old friend used to say, “Good night, and good luck.”