Dispatches From the Moderate Left

Saturday, December 24, 2005

In Praise of Regulation

Regulation gets a lot of bad press and areas which could do with less regulation get pointed out all the time, so it's worth pointing out situations where less regulation is the problem when the crop up. First on the list - who could ever imagine that having for-profit ethics review committees overseeing for-profit clinical review companies in a largely deregulated medical industry (the US) was a bad idea?
Drug companies spend $14 billion a year testing new drugs. The products need to be tested for safety on healthy people, and the healthy people most willing to ingest them are usually those with plenty of time and little money. Nearly 10 years ago, the Wall Street Journal reported that Eli Lilly and Company was recruiting homeless alcoholics to take part in drug trials in Indianapolis. In 2003, a previously healthy college student named Traci Johnson committed suicide in Lilly labs after being paid to take a new version of an antidepressant. Now Bloomberg is reporting that three years ago, Garry Polsgrove, a homeless Vietnam veteran, checked into the Fabre Research Clinic, a for-profit testing center in Houston. Polsgrove was in good health when he entered the study and started taking clozapine, an antipsychotic drug, in order to get some cash and a place to sleep. Twenty-two days later he was dead of myocarditis.

The new wrinkle in the Bloomberg story is that many of the questionable practices it reports unfolded under the nose of the for-profit organizations that researchers increasingly hire to conduct ethics reviews.
Western IRB [the main one of these companies] gave ethical approval to studies in Los Angeles and Georgia that later turned out to be fraudulent. The researchers involved reportedly wound up in prison for lying to the FDA and putting the lives of subjects in danger. Western IRB has also been sued for approving a placebo-controlled study of a Genentech drug called Raptiva. In that study, Bill Hamlet, a patient in North Carolina ill with psoriatic arthritis, claims that he was taken off his regular medications, which had been effective, and given a placebo instead. When Hamlet withdrew from the study six months later, he says his body was covered with bleeding scabs and he was bedridden from his psoriatic arthritis. The lawsuit was settled out of court.

And the problems associated with China's very lax environmental regulation are beginning to hurt even more, with two large toxic spills in the last week or so:
CHINA'S southern business capital of Guangzhou rushed to safeguard its water supply yesterday as a toxic spill from a smelter flowed towards the city of 7 million people just north of Hong Kong.
Several villages and factories in southern Guangdong province were without running water after cadmium levels were found to be 10 times above safety standards in a section of the North River running past the city of Shaoguan.
Cadmium, a metallic element widely used in batteries, can cause liver and kidney damage and lead to bone diseases.
The disaster came a month after a chemical plant explosion in China's north-east spewed 100 tonnes of benzene and other toxins into the Songhua River, forcing the city of Harbin to shut down running water.

And the mis-management of private data:
This year has been bad for my identity. In May, Time Warner, my former employer, sent me a letter informing me that they had lost backup tapes containing the names and Social Security numbers of their current and former U.S.-based employees. In June, it was announced that 40 million credit card numbers had been compromised by a computer hack into payment-transfer company CardSystems Solutions. In September, I learned that the CardSystems break-in had affected me. By now, virtually everyone knows someone who has had their data lost or identity stolen. From February--when a high-profile break-in at consumer-data broker ChoicePoint resulted in the loss of 145,000 records--until the CardSystems break-in, businesses, universities, and government agencies lost an additional ten million records. The increase in data theft has led to an increase in identity theft, in which petty thieves, organized crime, and terrorists use personal data to fraudulently obtain cash, credit, false identification, and travel documents. According to an August 2005 Experian/Gallup poll, nearly one in five Americans has experienced some form of identity theft.

We sometimes forget the historical catalysts for the rise of the regulatory state. We have had a largely de-regulated economy before and we rejected it because, contrary to what free-market utopianists claim, its effects were widespread environmental degradation, massive workplace exploitation in wages and safety conditions and huge monopolistic cartels. Like all good things, regulation is best done in moderation but it's good to be reminded that it's rarely best to abstain completely.


  • Regulation is certainly necessary in instances where co-operation is needed to more perfectly fulfil the demands of truly free trade. (For example, fair trading laws enhance people's knowledge of the market.) It also protects against the tragedy of the commons (including externalities, which I consider to be a kind of "commons").

    I think the example of the pharmaceutical firms is a case of regulating to help free trade. It is hopelessly inefficient for consumers to test medicinals for safety, so instead researchers test them. Promoting a dangerous product as safe is deceptive and damages the free market by denying consumers full information; they can't assess the true costs and benefits of their consumption.

    So yes, regulation is necessary to ensure that pharmaceutical companies perform adequate testing that gives the public full information.

    However, a great many other areas of regulation are superfluous. Here in Canberra for example the government controls the trees you put on your front garden. Not for safety reasons - after all, the government mandates eucalypts despite the 2003 bushfires - but rather because the government seems to think it's its job to tell you what trees their front garden can contain. What's more, they actually enforce these regulations! Imagine how much effort is going into that, and how much more production Canberra could have if those tree assessors got a real job!

    (Aphocryphally, I hear that regulations in Australia have been growing at about 10% a year for quite some time now. I don't think under-regulation is a real threat.)

    By Blogger Splat Guy, at 10:39 PM  

  • It shouldn't be surprising that government regulation gets bad press; people rightly resent being interfered with by beurocracts. Whoever is entrusted with the role of regulation will be biased and use their regulatory position to impose an agenda on whatever it is they regulate, although some will be more guilty of this than others.

    However, your point stands that some regulation is often better than no regulation; laws and political institutions of their nature create positions of power, but in some cases this stands in opposition to existing positions of power such as those created through private enterprise.

    By Blogger BenK, at 10:14 PM  

  • Caberra's zoning regulations are a weird by-product of the property ownership arrangement in that all land is leased from the government - none of it is freehold. I don't understand why they impose such stringent conditions on their lease, but I guess it's their prerogative, though i wouldn't do the same in their place.

    By Blogger Jeremy, at 2:22 PM  

  • Appreciate your blog,i have a victims support page against Eli Lilly for it's Zyprexa product causing my diabetes.--Daniel Haszard

    By Anonymous Daniel Haszard, at 4:24 AM  

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