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Civil Justice Memo
No. 2  July 1987


Who will protect us from our Protectors?

By Peter Huber

BURT RUTAN, the pioneering designer of the Voyager, didn't have the resources to compete with Cessna or Beech. But he had a cheaper way of getting his products to the marketplace. He sold construction plans for novel airplanes to do-it-yourselfers who built the planes in their garages. But two years ago, fearful of the lawsuits that would follow if a home-built plane based on his designs crashed, Rutan stopped selling the plans.

Our nation's bloated tort system is tough on small businesses like Rutan's, which can't afford costly lawsuits. What's even worse, the system, in conjunction with the bureaucracy, is beginning to strangle development and marketing of new technology. This could well be the greatest of all dangers to American competitiveness and to our standard of living.

I strongly suspect that if Henry Ford had had to bring out his Model T in today's environment, the courts and the regulators would have stopped him. Darn thing was dangerous; why, you could break your arm cranking it. Of course, horses were dangerous, too, but as an established technology, horse transportation would have fared better in the courts and regulatory halls than transportation by newfangled flivver.

Societies that lose their ability and will to innovate are soon superseded by others resilient enough to exploit change. The Inca and Aztec societies of the Western Hemisphere reached a high level of development and then stopped innovating. They fell easy prey to Europeans who had welcomed and absorbed new technology. That is only one dramatic example in history. The technology of stone surrenders to copper, nomadic hunter-gatherers to farmers, the longbow to the crossbow and the crossbow to gunpowder. Social traditions that emphasized horsemanship to the exclusion of artillery and infantry precipitated a rapid demise of Muslim power.

Time and time again the decline of nations originates in an aging society's complacent refusal to innovate and adapt. Government is captured by the forces of reaction, social institutions calcify and the brittle structure eventually collapses through internal erosion or outside pressure.

For much of the past century America was the world's center of technological innovation: first with the telephone, with mass-produced automobiles, with civilian nuclear power, with the microchip and with countless new pesticides, contraceptives and drugs. Measured by patents or Nobel prizes, we are still a technological dynamo.

But increasingly, the marketplace tells a different story. Anguished administrative agencies delay for years the introduction of new technologies. When an innovation does finally make it to the market, it is assaulted a second time by a liability system relentlessly hostile to all that is technologically unfamiliar. Bendectin, to take one example, was recently the best drug on the market to combat morning sickness. It survived strict Food & Drug Administration review only to be knocked off the market by a cascade of scientifically meritless lawsuits.

Old technologies bear regulatory and judicial burdens, too, but the newer ones are handicapped. That's because the old is innocent until proven guilty, while the new is guilty until proven innocent. The difference is important when the trial—whether in superior court or at the FDA—costs millions of dollars.

Under the Toxic Substances Control Act, a company must obtain Environmental Protection Agency approval before manufacturing or marketing a new chemical. By contrast, tens of thousands of "old" chemicals—listed in an official register—are regulated only if the agency itself takes the initiative. The same goes for pesticides.

Old coal-fired power plants have grandfather privileges; new ones are subject to stringent environmental controls. Selective breeding of plants and animals is unregulated. But genetic engineering—which achieves identical results far more economically and precisely by using recombinant DNA—is regulated with obsessive zeal by dozens of federal and state agencies.

We—the very society that always wanted the latest—have developed a bias against the new.

The process, as Alfred North Whitehead once observed, quickly becomes the reality. The inertia of government bureaucracy weighs in favor of the old and against the new. Scientific uncertainty about risk used to be resolved in favor of the regulatee. For today's screening agency, it always counts in favor of the regulator. When workplace regulators want to restrict exposure to benzene, they must prove there is "significant risk." But if a chemical company wants approval for a new, bio-engineered pesticide, the burdens are reversed. Here, ignorance about risks translates into the strictest possible regulation by the agency.

Trouble is, the more innovative a new technology really is, the more scientific uncertainty there is about both its risks and benefits. If change is to occur at all, the gatekeeper at the agency insists that it occur incrementally, within the safe boundaries of existing paradigms. Development is preferred over invention. The small step by an established company is favored over a great leap in an altogether new industry. Adding scrubbers to familiar coal-burning plants is easy but expensive. Switching to cleaner nuclear fuel is difficult.

Is it any wonder that the U.S.’ drug lag has been steadily widening? The well-publicized exceptions to the arduous approval process for experimental AIDS drugs are truly exceptional; the more typical result is the May decision by an FDA panel to keep tissue plasminogen activator away from heart attack victims. Somatotropin to correct pituitary deficiency, disopyramide for abnormal heart rhythm, propranolol for high blood pressure, sodium valproate for epilepsy and bromocryptine for endocrine disorders—all these were available to Europeans five to ten years before Americans could use them. The injectable contraceptive Depo-Provera, developed by Upjohn in the U.S., is marketed in 90 other countries, but not ours. A once-a-month contraceptive pill has been approved in France; a contraceptive vaccine and effective male chemical contraceptives are under rapid development in a number of other countries. No approval of any of these products in the U.S. is imminent.

What is true at the FDA is true elsewhere in Washington. For six years Chemical Waste Management has been pleading for permission to exploit incineration technology 140 miles off the Atlantic coast, on its Vulcanus II. For six years the Environmental Protection Agency has been stalling on the request. Meanwhile, both Vulcanus I and II have been operating off Europe for 15 years.

The U.S. breeder nuclear reactor program is dead, while Japan, France and much of Western Europe are moving steadily for ward. In this country the only future of electric power is the past: coal, the most primitive and environmentally regressive option. Disposal of nuclear wastes in this country is paralyzed by regulatory handwringing, although the technology is well developed. France is at least a decade ahead in its use.

Genetic engineering is fast being tied up in regulatory knots. The development of a gene-modified bacterium to prevent frost damage on crops goes back to 1982, but the technology was finally tested—still under absurdly excessive regulation—only this year. Regulatory inertia has likewise chilled and delayed testing of a gene-altered cutworm pesticide developed by Monsanto, another bacterium that grows symbiotically with alfalfa, several gene-altered animal vaccines and animal tests of enhanced growth hormone genes.

Our legal system aims to prevent a Chernobyl or a thalidomide. It has done that, but it has done so in a way that makes rational risk comparisons impossible. Coal plants probably kill 500 people a year in mining accidents and in acceleration of lung ailments by air pollution, while deaths from nuclear plants in this country are, so far, close to zero. Yet coal power is favored over nuclear. Vaccines may save 1,000 lives for every one they take, but liability for that one death is enough to scare vaccinemakers out of the business.

Saccharin had been on the market for almost a hundred years when the FDA proposed a ban in 1977. Because it was so well entrenched, the saccharin industry had no difficulty getting Congress to overrule the ban. But it took G.D. Searle eight years and an enormous investment to win FDA approval of aspartame, and those eight extra years of heavy saccharin use may have caused several thousand unnecessary cancers.

Manufacturers of small, piston-engine planes have suspended production in the face of escalating liability. One 1978 jury held Piper Aircraft liable for its design "defect" in using a carburetor rather than a fuel injection system. The engine was fully approved by the Federal Aviation Administration, and 90% of the other planes of that size used identical fuel systems. Beech continues to make a full line of planes but isn't making much money on them. Its product liability costs average $105,000 per plane. All this leaves the field to dangerous secondhand planes that were placed on the market at an earlier point in the liability system's spiral.

Irradiation is the best way to kill salmonella bacteria in fresh chicken. It isn't permitted. So we rely instead on an antiquated inspection system, and we get sick. Holland and Japan have rushed ahead of us in commercializing irradiation technology.

Our paralysis in rationally comparing new and old risks, then, has made ours a riskier society. The scene is from the lowest circle of Dante's Inferno. Two great birds flap their wings desperately in a struggle to escape unknown terrors—and the flapping itself keeps their claws frozen solidly in the ice below.

The media must take some of the blame for this state of affairs. Stories about the risks of automobiles or cigarettes are not news, but the story of a Three Mile Island accident that hurts no one is big news. Jeremy Rifkin's Foundation for Economic Trends, which fights biotechnology, and the Union of Concerned Scientists, which fights for nuclear regulation, are taken seriously by reporters, editors and broadcasters out of all proportion to their actual scientific constituencies.

The change-haters also get support from unions. Factory workers fight robots, agricultural workers fight mechanical harvesters, airline pilots fight the shift from three- to two-person cockpits and plumbers fight labor-efficient plastic pipe. Then business chimes in. The anti-plastic plumbers, for example, are allied with metal-pipe manufacturers. It's domestic protectionism—a reactionary trend that raises the cost and risks of life in the U.S., and all in the name of protecting the public.

The liability system cuts in where the administrative agencies leave off. Until the early 1960s liability in U.S. courts depended on negligence. The negligence standard inquired whether the technologist was careful, prudently trained, properly supervised. The technologists best able to meet this standard were often the ones at the leading edge.

But the liability system's focus shifted profoundly in the 1960s and early 1970s, to "strict" liability. (For more on this arrogation of power by the judiciary see "Judicial imperialism," Forbes, June 1) This tells juries to assess technology, not the conduct of those who create and manage it. The good faith, care and training of the technologist is irrelevant. Technology itself stands in the dock.

This seemingly modest change tilts the entire liability system against innovation. Jurors can make reasonably sensible, intuitive judgments about other individuals, even professionals, but they are not experts on technology or its risks. When jurors are asked to categorize technologies (as distinct from their inventors or managers) as good, bad or ugly, the answers follow a predictable pattern. Age, familiarity and ubiquity are the most potent legitimizing forces known to the modern liability system. The inexpert juror is predisposed to spot "defects” in technologies that are unfamiliar or adventuresome.

Appeals court judges announce solemnly that they cannot upset a determination of "fact" by a jury. And so the federal appeals court in Atlanta recently affirmed a $4.7 million verdict against a maker of a widely used spermicide that was accused of causing a birth defect. What kind of "fact" is this? Scientifically, the case is a farce. The likelihood that the spermicide caused the plaintiff's birth defect is close to nil.

Do we get safer birth control this way? Emphatically, no. Makers of oral contraceptives also fight lawsuits, but they have been on the market longest and have learned to survive the liability sweepstakes, mainly by providing excruciatingly detailed warnings. The art of writing warning labels requires a wealth of market and litigation experience. The warning rules greatly favor old products over new ones.

Innovation germinates in small institutions. But success in the regulatory system requires a large stable of lobbyists and liability lawyers. So technology tends to proceed in small steps from established firms more than huge leaps from innovators. Insurance aggravates the bias against innovators. The availability of affordable insurance depends entirely on the accumulation of actuarial experience—something all established technologies have and no truly innovative one ever does.

U.S. utilities now go abroad to buy back improvements on the technology U.S. firms once sold. Last year the Wistar Institute in Philadelphia arranged research in Argentina to test a bovine rabies vaccine, and Oregon State University researchers chose New Zealand to test another bioengineered vaccine. Regulatory agencies and liability courts send a single, persistent message to scientists, engineers, doctors, pharmaceutical firms, waste handlers, airlines: Don't experiment, don't be venturesome, don't go out on a limb. Play it safe.

Creative destruction—the constant replacement of old social structures and technologies with new ones—is the key to any civilization's survival. In this sense, our enemy is within, not without. We are stifled by our own do-gooders, our law courts, our bureaucrats. Today the Wright brothers could not get off the ground. Could our early railroads have passed an environmental impact or safety test? What would the unions have done to Eli Whitney's cotton gin?

 


Center for Legal Policy.

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SUMMARY:
Some of the best summer reading around is in Forbes' 70th Anniversary issue dated July 13th. The lead article by Nobel Laureate George Stigler is a real zinger and it's followed by a 4-page piece about technology and the law that speaks directly to the "competitiveness" question. The author, I'm proud to say, is Manhattan Institute Senior Fellow Peter Huber, whose book about liability has just gone to the publisher.
Peter's lively writing style and analytical rigor is a rare combination for advocacy pieces in general and treatments of the law in particular—which is why he's a Manhattan Institute Senior Fellow! He has some good observations about innovation, risk, and the future.
--William M.H. Hammett

 


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