FREE TO CHOOSE “Who protects the consumer?” Video and Transcript Part 2 of 7 “When governments do intervene in business, innovation is stifled. Railroads have been regulated for nearly a century and they are one of our most backward industries.”


In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market.

From the original Free To Choose series Milton asks: “Who Protects the Consumer?”. Many government agencies have been created for this purpose, yet they do so by restricting freedom and stifling beneficial innovation, and eventually become agents for the groups they have been created to regulate.

Milton Friedman noted how the government usually messes up things when they start regulating: “When governments do intervene in business, innovation is stifled. Railroads have been regulated for nearly a century and they are one of our most backward industries.”
Part 2
When governments do intervene in business, innovation is stifled. Railroads have been regulated for nearly a century and they are one of our most backward industries. The railroad story shows what so often results from the good intentions of consumer protection groups. In the 1860’s railroad rates were lower in the United States than anywhere else in the world. Yet many customers thought they were too high. They complained bitterly about the profits of the railroads.
Now the railway men of the time had their problems too. Problems that arose out of the fierce competitiveness among them. Many railroads all trying to get their share of the market, all trying to make a name for themselves. If you want to see what their problems were as they saw them, come and have a look at this.
From inside this private railroad car it may not look as if the people who ran the railroads had any real problems. Some, like the owner of this private car, had done very well. This was the equivalent of the private jet of today’s business tycoons. But for each one who succeeded, many didn’t survive the cutthroat competition.
What we have here is a railroad map of the United States for the year 1882. It shows every railroad then in existence. The country was literally crisscrossed with railroads going to every remote hamlet and covering the nation from coast to coast. Between points far distant like for example New York and Chicago, there might be a half a dozen lines that would be running between those two points. Each of the half dozen trying to get business would cut rates and rates would get very low. The people who benefited most from this competition were the customers shipping goods on a long trip.
On the other hand, between some segments of that trip, say for example, Harrisburg and Pittsburgh, there might be only a single line that was running and that line would take full advantage of its monopoly position. It would charge all that the traffic would bear. The result was that the sum of the fares charged for the short haul was typically larger than the total sum charged for the long haul between the two distant points. Of course, none of the consumers complained about the low price for the long haul, but the consumer certainly did complain about the higher prices for the short hauls. And that was one of the major sources of agitation leading ultimately to the establishment of the Interstate Commerce Commission.
The cartoonists of the day delighted in pointing out that railroads had tremendous political instinct. As indeed they did. They used the consumer’s complaints to get the government to establish a commission that would protect the railroad’s interest. It took about a decade to get the commission into full operation. By that time, needless to say, the consumer advocates had moved on to their next crusade. But the railway men were still there. They had soon learned how to use the commission to their own advantage. They solved the long haul/short haul problem, by raising the long haul rates. The customers ended up paying more, some protection. The first commissioner was Thomas Cooley, a lawyer who had represented the railroads for many years. The railroads continued to dominate the Commission.
In the 1920’s and 30’s when trucks emerged as serious competitors for long distance hauling, the railroads induced the Commission to extend control over trucking. Truckers, in their turn, learned how to use the Commission to protect themselves from competition. This firm carries freight to and from the Dayton, Ohio International Airport. Its the only one serving some routes and its customers depend on it. But Dayton Airfreight has real problems. Its ICC license only permits it to carry freight from Dayton to Detroit. To serve other routes it’s had to buy rights from other ICC license holders including one who doesn’t own a single truck. It’s paid as much as $100,000 a year for the privilege.
Secretary: Our company is in the process of trying to get rights to go there now. Yes, we’ll do that and thank you for calling sir.
The owners of the firm have been trying for years to get their license extended to cover more routes.
Air freight company: Now I don’t have any argument with the people who already have ICC permits except for the fact that this is a big country and since the inception of the ICC in 1936, there has been very few entrants into the business. They do not allow new entrants to come in and compete with those who are already in.
Unnamed individual: Of course, Dayton Airfreight suffers but so do the customers who pay higher freight charges. Quite frankly, I don’t know why the ICC is sitting on its hands doing nothing. This is the third time to my knowledge that we’ve support the application of Dayton Airfreight to help us save money, help free enterprise, help the country save energy, help, help, help. It all comes down to consumers ultimately going to pay for all of this and they are the blame. The ICC has to be the blame.
Friedman: Dayton Airfreight now has many of its trucks lying idle. Trucks that could be providing a valuable service. Far from protecting consumers, the ICC has ended up making them worse off.
As far as I’m concerned, there is no free enterprise in interstate commerce. It no longer exists in this country. You have to pay the price and you have to pay the price very dearly and I don’t mean we have to pay the price, it means that the consumer is paying that price.
The price consumers pay when it comes to medicine could be their lives. In the 19th Century pharmacies contained an impressive array of pills and potions. Most were ineffective and some were deadly. There was an outcry about drugs that maimed or killed. The Food and Drug Administration in response to consumer pressure succeeded in banning a whole range of medicines. The tonics and lotions with their excessive claims disappeared from the market. In 1962 the Kefauver Amendment gave the FDA power to regulate all drugs for effectiveness as well as for safety. Today, every drug marketed in the United States must pass the FDA. It’s clear that this has protected us from some drugs with horrific side effects like thalidomide. And we all know of people who have benefited from modern drugs. What we don’t hear much about however, are the beneficial drugs that the FDA has prohibited.
Well, if you examine the therapeutic benefits of significant drugs that haven’t arrived in the U.S. but are available somewhere in the rest of the world, such as in Britain, you can come across numerous examples where the patient has suffered. For example, there are one or two drugs called beta blockers which now can prevent death after heart attack, we call it secondary prevention of coronary death after myocardial infarction, which if available here, could be saving about 10,000 lives a year in the United States. In the ten years after the 1962 amendments no drug was approved for hypertension. That’s for the control the blood pressure in the United States, where as several were approve in Britain. In the entire cardiovascular area, only one drug was approved in the five year period from 67 to 72. And this can be correlated with known organizational problems at FDA.
These carts are taking to an FDA official the documents required to get just one drug approved.
Worker: Well, hi there, must be the new one they called me about.
Friedman: It took six years work by the drug company to get this drug passed.
Worker: This one right here, all 119 volumes.

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