Tuesday, May 31, 2005

Medical editors: One-sided drug reviews hard to swallow

By Rita Rubin, USA TODAY
Drug companies' marketing efforts may sometimes be more subtle than pens emblazoned with their product's name or full-page ads in leading medical journals.
Some journal editors say they regularly receive submissions that appear to be written by the drugmakers' marketing machines, not the scientists whose names appear as authors.

Such a practice would violate the guidelines of the Pharmaceutical Research and Manufacturers of America, or PhRMA, the prescription drug industry's trade group, on the communication of clinical trial results. According to the PhRMA guidelines, anyone involved in analyzing, interpreting or writing up clinical trial data "should be recognized appropriately in resulting publications."

It is not known what proportion of papers submitted to medical journals are ghostwritten. But of the 70 to 80 manuscripts her journal receives each month, two to four present suspiciously glowing reports of a drug's benefits or excessively critical appraisals of its competitors, says Martha Gerrity, co-editor of the Journal of General Internal Medicine. Many are reviews of previous research and not new clinical trial findings, she says.

"What is surprising is the growth in the number of manuscripts where the pharmaceutical industry is trying to manipulate the medical literature," says Gerrity, of the Oregon Health & Science University in Portland. Her journal posted a commentary online about one such article last month.

Adriane Fugh-Berman, an adjunct associate professor of physiology and biophysics at Georgetown University, described how a British medical education company, on a drugmaker's behalf, asked her about a year ago to write a piece about interactions between herbs and warfarin, a generic anticoagulant, or blood thinner. When the company sent her a one-sided draft under her byline, Fugh-Berman says, she declined to get involved.

Months later, slightly reworked and under a different byline, the paper was submitted to the Journal of General Internal Medicine The article came full circle when the journal's editors asked Fugh-Berman, known for her expertise on herbal supplements, to review it. When she told the editors of the paper's history, they rejected it.

"Diligence of medical editors and reviewers will continue to be the first line of defense against the sullying of the medical literature by biased 'reviews' whose motivation is commercial, not scientific," Gerrity and co-editor William Tierney wrote in an editorial accompanying Fugh-Berman's commentary.

In response to the warfarin article incident, the World Association of Medical Editors posted a statement online calling the ghostwriting of manuscripts "dishonest and unacceptable."

Catherine DeAngelis, editor of The Journal of the American Medical Association, says, "This has been going on forever." Before she became an editor, DeAngelis says, she got a call a month asking her to put her name on a paper she didn't write, a practice she describes as "manipulation by for-profits to alter what's in the (medical) literature so they could sell their products."

Gerrity's journal doesn't name names, but Fugh-Berman says the education company approached her on behalf of AstraZeneca, which was seeking Food and Drug Administration approval of Exanta, a new anticoagulant. The FDA eventually rejected Exanta.

"The manuscript will be completely objective, and there will be no promotion of any drug," an education company employee said in an introductory e-mail to Fugh-Berman. "It is intended to highlight the inadequacies of current anticoagulation treatment and practices."

Valerie Siddall, AstraZeneca's head of global publications, says the drugmaker "made no secret of the fact that we actually are very interested and very active in anticoagulants as an area of research."

But, she says, the medical education company made "a really awful error" in presenting Fugh-Berman with a completed manuscript before getting her input.

Siddall says the named author of the version submitted to the internal medicine journal "had full editorial control about what went in the paper."

Sunday, May 29, 2005

The end of peak oil?

By MATT CRENSON, AP National Writer
Sun May 29, 5:34 AM ET

Could the petroleum joyride - cheap, abundant oil that has sent the global economy whizzing along with the pedal to the metal and the AC blasting for decades - be coming to an end? Some observers of the oil industry think so. They predict that this year, maybe next - almost certainly by the end of the decade - the world's oil production, having grown exuberantly for more than a century, will peak and begin to decline.

And then it really will be all downhill. The price of oil will increase drastically. Major oil-consuming countries will experience crippling inflation, unemployment and economic instability. Princeton University geologist Kenneth S. Deffeyes predicts "a permanent state of oil shortage."

According to these experts, it will take a decade or more before conservation measures and new technologies can bridge the gap between supply and demand, and even then the situation will be touch and go.

None of this will affect vacation plans this summer - Americans can expect another season of beach weekends and road trips to Graceland relatively unimpeded by the cost of getting there. Though gas prices are up, they are expected to remain below $2.50 a gallon. Accounting for inflation, that's pretty comparable to what motorists paid for most of the 20th century; it only feels expensive because gasoline was unusually cheap between 1986 and 2003.

And there are many who doubt the doomsday scenario will ever come true. Most oil industry analysts think production will continue growing for at least another 30 years. By then, substitute energy sources will be available to ease the transition into a post-petroleum age.

"This is just silly," said Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Mass. "It's not like industrial civilization is going to come crashing down."

Where you stand on "peak oil," as parties to the debate call it, depends on which forces you consider dominant in controlling the oil markets. People who consider economic forces most important believe that prices are high right now mostly because of increased demand from China and other rapidly growing economies. But eventually, high prices should encourage consumers to use less and producers to pump more.

But Deffeyes and many other geologists counter that when it comes to oil, Mother Nature trumps Adam Smith. The way they see it, Saudi Arabia, Russia, Norway and other major producers are already pumping as fast as they can. The only way to increase production capacity is to discover more oil. Yet with a few exceptions, there just isn't much left out there to be discovered.

"The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground," Deffeyes said.

There will be warning signs before global oil production peaks, the bearers of bad news contend. Prices will rise dramatically and become increasingly volatile. With little or no excess production capacity, minor supply disruptions - political instability in Venezuela, hurricanes in the Gulf of Mexico or labor unrest in Nigeria, for example - will send the oil markets into a tizzy. So will periodic admissions by oil companies and petroleum-rich nations that they have been overestimating their reserves.

Oil producers will grow flush with cash. And because the price of oil ultimately affects the cost of just about everything else in the economy, inflation will rear its ugly head.

Anybody who has been paying close attention to the news lately may feel a bit queasy at this stage. Could $5-a-gallon gas be right around the corner?

"The world has never seen anything like this before and so we just really don't know," said Robert L. Hirsch, an energy analyst at Science Applications International Corp., a Santa Monica, Calif., consulting firm.

Still, he added, "there's a number of really competent professionals that are very pessimistic."

The pessimism stems from a legendary episode in the history of petroleum geology. Back in 1956, a geologist named M. King Hubbert predicted that U.S. oil production would peak in 1970.

His superiors at Shell Oil were aghast. They even tried to persuade Hubbert not to speak publicly about his work. His peers, accustomed to decades of making impressive oil discoveries, were skeptical.

But Hubbert was right. U.S. oil production did peak in 1970, and it has declined steadily ever since. Even impressive discoveries such as Alaska's Prudhoe Bay, with 13 billion barrels in recoverable reserves, haven't been able to reverse that trend.

Hubbert started his analysis by gathering statistics on how much oil had been discovered and produced in the Lower 48 states, both onshore and off, between 1901 and 1956 (Alaska was still terra incognita to petroleum geologists 50 years ago). His data showed that the country's oil reserves had increased rapidly from 1901 until the 1930s, then more slowly after that.

When Hubbert graphed that pattern it looked very much like America's oil supply was about to peak. Soon, it appeared, America's petroleum reserves would reach an all-time maximum. And then they would begin to shrink as the oil companies extracted crude from the ground faster than geologists could find it.

That made sense. Hubbert knew some oil fields, especially the big ones, were easier to find than others. Those big finds would come first, and then the pace of discovery would decline as the remaining pool of oil resided in progressively smaller and more elusive deposits.

The production figures followed a similar pattern, but it looked like they would peak a few years later than reserves.

That made sense too. After all, oil can't be pumped out of the ground the instant it is discovered. Lease agreements have to be negotiated, wells drilled, pipelines built; the development process can take years.

When Hubbert extended the production curve into the future it looked like it would peak around 1970. Every year after that, America would pump less oil than it had the year before.

If that prognostication wasn't daring enough, Hubbert had yet another mathematical trick up his sleeve. Assuming that the reserves decline was going to be a mirror image of the rise, geologists would have found exactly half of the oil in the Lower 48 when the curve peaked. Doubling that number gave Hubbert the grand total of all recoverable oil under the continental United States: 170 billion barrels.

At first, critics objected to Hubbert's analysis, arguing that technological improvements in exploration and recovery would increase the amount of available oil.

They did, but not enough to extend production beyond the limits Hubbert had projected. Even if you throw in the unexpected discovery of oil in Alaska, America's petroleum production history has proceeded almost exactly as Hubbert predicted it would.

Critics claim that Hubbert simply got lucky.

"When it pretty much worked," Lynch said, "he decided, aha, it has to be a bell curve."

But many experts see no reason global oil production has to peak at all. It could plateau and then gradually fall as the economy converts to other forms of energy.

"Even in 30 to 40 years there's still going to be huge amounts of oil in the Middle East," said Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis.

A few years ago, geologists began applying Hubbert's methods to the entire world's oil production. Their analyses indicated that global oil production would peak some time during the first decade of the 21st century.

Deffeyes thinks the peak will be in late 2005 or early 2006. Houston investment banker Matthew Simmons puts it at 2007 to 2009. California Institute of Technology physicist David Goodstein, whose book "The End of Oil" was published last year, predicts it will arrive before 2010.

The exact date doesn't really matter, said Hirsch, because he believes it's already too late. In an analysis he did for the U.S. Department of Energy in February, Hirsch concluded that it will take more than a decade for the U.S. economy to adapt to declining oil production.

"You've got to do really big things in order to dent the problem. And if you're on the backside of the supply curve you're chasing the train after it's already left the station," he said.

For example, the median lifetime of an American automobile is 17 years. That means even if the government immediately mandated a drastic increase in fuel efficiency standards, the conservation benefits wouldn't fully take effect for almost two decades.

And though conservation would certainly be necessary in a crisis, it wouldn't be enough. Fully mitigating the sting of decreasing oil supplies would require developing alternate sources of energy - and not the kind that politicians and environmentalists wax rhapsodic about when they promise pollution-free hydrogen cars and too-cheap-to-meter solar power.

If oil supplies really do decline in the next few decades, America's energy survival will hinge on the last century's technology, not the next one's. Hirsch's report concludes that compensating for a long-term oil shortfall would require building a massive infrastructure to convert coal, natural gas and other fossil fuels into combustible liquids.

Proponents of coal liquefaction, which creates synthetic oil by heating coal in the presence of hydrogen gas, refer to the process as "clean coal" technology. It is clean, but only to the extent that the synthetic oil it produces burns cleaner than raw coal. Synthetic oil still produces carbon dioxide, the main greenhouse warming gas, during both production and combustion (though in some scenarios some of that pollution could be kept out of the atmosphere). And the coal that goes into the liquefaction process still has to be mined, which means tailing piles, acid runoff and other toxic ills.

And then there's the fact that nobody wants a "clean coal" plant in the backyard. Shifting to new forms of energy will require building new refineries, pipelines, transportation terminals and other infrastructure at a time when virtually every new project faces intense local opposition.

Energy analysts say coal liquefaction can produce synthetic oil at a cost of $32 a barrel, well below the $50 range where oil has been trading for the past year or so. But before they invest billions of dollars in coal liquefaction, investors want to be sure that oil prices will remain high.

Investors are similarly wary about tar sands and heavy oil deposits in Canada and Venezuela. Though they are too gooey to be pumped from the ground like conventional oil, engineers have developed ways of liquefying the deposits with injections of hot water and other means. Already, about 8 percent of Canada's oil production comes from tar sands.

Unfortunately, it costs energy to recover energy from tar sands. Most Canadian operations use natural gas to heat water for oil recovery; and like oil, natural gas has gotten dramatically more expensive in the past few years.

"The reality is, this thing is extremely complicated," Hirsch said. "My honest view is that anybody who tells you that they have a clear picture probably doesn't understand the problem."

Saturday, May 28, 2005

An alternative explanation on why gas prices are REALLY high

Mansori posits it might have something to do with crude oil prices or something.

Friday, May 27, 2005

Don't think like an elephant

From commondreams.org

New report from Amnesty International: Guantanamo and Beyond

This report is a "must read".

An excerpt:

In late December 2001, a memorandum was sent from the United States Justice Department to the Department of Defense.(4) It advised the Pentagon that no US District Court could "properly entertain" appeals from "enemy aliens" detained at the US Naval Base in Guantánamo Bay, Cuba. Because Cuba has "ultimate sovereignty" over Guantánamo, the memorandum asserted, US Supreme Court jurisprudence meant that a foreign national in custody in the naval base should not have access to the US courts. The first "war on terror" detainees were transferred to the base two weeks later. The memorandum remained secret until it was leaked to the media in mid-2004 in the wake of the Abu Ghraib torture scandal.

Not long after this leak, on 28 June 2004, the US Supreme Court ruled, in Rasul v. Bush, that the federal courts in fact do have jurisdiction to hear appeals from foreign nationals detained in Guantánamo Bay.(5) Yet almost a year later, none of the more than 500 detainees of some 35 nationalities still held in the base – believed to include at least three people, from Canada, Chad and Saudi Arabia, who were minors at the time of being taken into custody – has had the lawfulness of his detention judicially reviewed. The US administration continues to argue in the courts to block any judicial review of the detentions or to keep any such review as limited as possible and as far from a judicial process as possible. Its actions are ensuring that the detainees are kept in their legal limbo, denied a right that serves as a basic safeguard against arbitrary detention, "disappearance" and torture or other cruel, inhuman or degrading treatment. Amnesty International believes, as explained in Section 3, that all those currently held in Guantánamo are arbitrarily and unlawfully detained.

The administration responded to the Rasul decision by setting up Combatant Status Review Tribunals (CSRTs), panels of three military officers, to determine if each detainee was an "enemy combatant" as labelled. The detainee has no access to secret evidence used against him in this process or to legal counsel to assist him. The CSRT, meanwhile, can draw on evidence extracted under torture or other ill-treatment in making its determinations. The CSRTs began in July 2004 and were completed for the current detainee population in January 2005, with the final decisions issued in late March 2005. In 93 per cent of the 558 cases, the CSRT affirmed the detainee’s "enemy combatant" status. Eighty-four per cent of the 38 cases where the detainee was found not to be an "enemy combatant" were decided later than 31 January 2005, when a federal judge, District Judge Joyce Hens Green, found that the CSRT process was unlawful, but before the government’s appeal against her ruling was heard (see Sections 7 and 8, and Appendix 2).

At the end of April 2005, three years and three months after "war on terror" detentions in Guantánamo Bay began, the government filed a brief in the US Court of Appeals arguing that Judge Green’s opinion should be overturned and that the purely executive CSRT process should be accepted as a substitute for judicial review. The government emphasised the CSRT’s "findings in favor of 38 detainees" as a sign of a constitutionally fair system. The brief did not point out – or explain if it was pure coincidence – that all but six of these 38 cases had been decided after Judge Green’s ruling. In any event, the appeal brief shows an administration in unapologetic mood, in continuing pursuit of unfettered executive authority under the President’s war powers as Commander-in-Chief of the Armed Forces, and maintaining a disregard for international law and standards. Among the arguments in the legal brief are that:

The US Constitution’s Fifth Amendment prohibition on the deprivation of liberty without due process of law "is inapplicable to aliens captured abroad and held at Guantanamo Bay." This, the government argues, repeating its pre-Rasul position, is because the "United States is not sovereign over Guantanamo Bay". In addition, "if the courts were to second-guess an Executive-Branch determination regarding who is sovereign over a particular foreign territory, they would not only undermine the President’s lead role in foreign policy, but also compromise the very capacity of the President to speak for the Nation with one voice in dealing with other governments."

Even if the Fifth Amendment did apply to foreign nationals held at Guantánamo, the brief argues, the CSRT procedures would exceed whatever process was due in the case of these detainees. The need for deference to the executive on the question of the withholding of classified information and legal counsel from the detainees is "greatly magnified here, where the issue is not the administration of domestic prisons, but the Executive Branch carrying out incidents of its war-making function."
According to the administration, "the determination of who are enemy combatants is a quintessentially military judgment entrusted primarily to the Executive Branch." The executive, the executive argues, "has a unique institutional capacity to determine enemy combatant status and a unique constitutional authority to prosecute armed conflict abroad and to protect the Nation from further terrorist attacks. By contrast, the judiciary lacks the institutional competence, experience, or accountability to make such military judgments at the core of the war-making powers."
On the question of the Geneva Conventions, the brief argues, Judge Green’s contention that Taleban detainees picked up in Afghanistan should have been presumed to have prisoner of war status is "inconsistent with the deference owed to the President as Commander-in-Chief" who had unilaterally decided otherwise.(6)

This brief is perhaps an unsurprising response from an administration whose outgoing Attorney General decried what he characterized as "intrusive judicial oversight and second-guessing of presidential determinations";(7) whose Justice Department formulated the position, accepted by the White House Counsel, that the President – who apparently believes that there are people who are "not legally entitled" to humane treatment(8) – could override the national and international prohibition on torture;(9) and whose Secretary of Defense has authorized interrogation techniques that violate international law and standards.(10) This is an administration that has sought unchecked power throughout the "war on terror" and shown a chilling disregard for international law. The USA’s policies and practices have led to serious human rights violations and have set a dangerous precedent internationally.

Thursday, May 26, 2005

Krugman: "America wants security"

Great editorial by Paul Krugman in the New York Times:

America Wants Security
By PAUL KRUGMAN (NYT) 798 words
Published: May 23, 2005

It was a carefully staged Norman Rockwell scene. The street was lined with American flags; a high school band played ''God Bless America.''
Then, under the watchful gaze of Wal-Mart's chief operating officer, Maryland's governor vetoed a bill that would have obliged large businesses to spend more on employee health care.


The news here isn't that some politicians wrap their deference to corporate interests in the flag. The news, instead, is that Maryland's State Legislature passed a pro-worker bill in the first place. In fact, the bill passed by a veto-proof majority in the Maryland Senate, and fell just short of that margin in the House.

After November's election, the victors claimed a mandate to unravel the welfare state. But the national election was about who would best defend us from gay married terrorists. At the state level, where elections were fought on bread-and-butter issues, voters sent a message that they wanted a stronger, not weaker, social safety net.

I'm not just talking about the shift in partisan alignment, in which Democrats made modest gains in state legislatures, and achieved a few startling successes. I'm also talking about specific issues, like the lopsided votes in both Florida and Nevada for constitutional amendments raising the minimum wage.

Since the election, high-profile right-wing initiatives, at both the federal and state level, have run into a stone wall of public disapproval. President Bush's privatization road show seems increasingly pathetic. In California, the conservative agenda of Arnold Schwarzenegger, including an attempt to partially privatize state pensions, has led to demonstrations by nurses, teachers, police officers and firefighters -- and to a crash in his approval ratings.

There's a very good reason voters, when given a chance to make a clear choice, increasingly support a stronger, not a weaker, social safety net: they need that net more than ever. Over the past 25 years the lives of working Americans have become ever less secure. Jobs come without health insurance; 401(k)'s vanish; corporations default on their pension obligations; workers lose their jobs more often, and unemployment lasts much longer than it used to.

The latest Wall Street Journal/NBC poll showed what the pollsters called an ''angry electorate.'' By huge margins, voters think that politicians are paying too little attention to their concerns, especially health care, jobs and gas prices.

At the state level, many, though by no means all, politicians are responding to those concerns. The push to raise the minimum wage is a useful political barometer: seven states have raised the minimum in just the last two years.

True, there are limits on what state governments can do: they fear that if they do too much for workers, they'll drive business and jobs away. I'd argue that the fear is often exaggerated. For example, Wal-Mart may avoid states that force it to provide health insurance, but given the hidden subsidies the company receives -- one way or another, taxpayers end up paying a lot for uninsured workers -- this may not be such a bad thing. Still, any major strengthening of the safety net will have to come at the federal level.

Why, then, is Washington so out of touch?

At a gala dinner in his honor, Tom DeLay cited his party's recent achievements: ''bankruptcy reform, class-action reform, energy, border security, repealing the death tax.'' All of these measures are either irrelevant to or actively hostile to the economic security of working Americans.

Yet as Mr. DeLay boasted, many Democratic members of Congress also voted in support of these measures. In so doing, they undermined their party's ability to claim that it stands for something different.

So where will change come from?

Everyone loves historical analogies. Here's my thought: maybe 2004 was 1928. During the 1920's, the national government followed doctrinaire conservative policies, but reformist policies that presaged the New Deal were already bubbling up in the states, especially in New York.

In 1928 Al Smith, the governor of New York, was defeated in an ugly presidential campaign in which Protestant preachers warned their flocks that a vote for the Catholic Smith was a vote for the devil. But four years later F.D.R. took office, and the New Deal began.

Of course, the coming of the New Deal was hastened by a severe national depression. Strange to say, we may be working on that, too.

Wednesday, May 25, 2005

World Bank, IMF Requirements Stifling Poor Countries' Health Spending

by Abid Aslam
 

WASHINGTON -- The World Bank and International Monetary Fund (IMF) are preventing foreign aid from reaching HIV/AIDS programs in the world's poorest countries, according to an assessment appearing in a leading medical journal.

The matter ''reveals the dark underside of the industrialized world's grand rhetoric about improving the health of the poor,'' say Gorik Ooms of the international relief organization Doctors Without Borders and Ted Schrecker of the University of Ottawa in an article in the current issue of The Lancet.


In many developing countries inflows of development assistance are dwarfed by outflows of funds to repay external debt.



At issue are health-spending targets that Schrecker and Ooms say limit poor countries' expenditure on public health.

In order to receive debt relief, each of sub-Saharan Africa's 32 most heavily indebted poor countries (also known as HIPCs) must win bank and fund approval for a poverty reduction strategy that includes a budget projection indicating spending targets across various sectors of the government's budget.

In some countries, these targets ''have functioned, at least temporarily, as health-spending ceilings: the requirements of the IMF appear to mean that countries must include the value of all new donor funding received for initiatives such as scaling-up delivery of antiretroviral treatment'' against HIV/AIDS, state the authors, who say they have encountered the problem in Mozambique and Uganda since around 2001.

In other words, ''if a sector receives any new funds that were not initially budgeted for, it forfeits a similar amount from the government coffers,'' they add, citing an earlier news item in The Lancet.

''Such expenditure ceilings create an obvious disincentive for external funders to offer financing that is desperately needed for such interventions,'' Ooms and Schrecker add in their article, which appears in the journal's May 21 edition.

In the case of Uganda, the authors say, the IMF said in September 2004 that the government in Kampala had rejected no HIV/AIDS funding because of expenditure ceilings. However, they add, only $18.6 million of $201 million approved for the East African country were disbursed by the Global Fund to Fight AIDS, Tuberculosis and Malaria.

The bank and fund could not be reached for comment Monday. As the authors acknowledge, however, the ceilings are set because the IMF and finance ministries worry that ''the rapid inflow of foreign exchange associated with increased aid receipts can drive up the value of the recipient country's currency.''

In turn, this could result in an increase in the price of the country's exports, which would undermine its competitiveness.

But the HIV/AIDS pandemic merits a rethink of this approach, the authors say.

First, they cite a 2004 report from the U.N. AIDS agency, UNAIDS, that said ''the short-term inflationary effects of increased and additional resources applied in tackling the HIV epidemic pale in comparison with what will be the long-term effects of half-hearted responses on the economies of hard-hit countries. AIDS is an exceptional disease; it requires an exceptional response.''

Second, they say that ''in many developing countries inflows of development assistance are dwarfed by outflows of funds to repay external debt.''

Existing debt-relief initiatives will eliminate only half of the creditors' claims that hang over the world's poorest economies, say Ooms and Schrecker, ''meaning that without substantial increases in development assistance their ability to make long-term budgetary commitments to improved health will remain fragile and vulnerable to the vagaries of export markets for their products.''

James Wolfensohn, the World Bank's outgoing president, last week said he regretted he was unable to mobilize world leaders and his own organization faster to tackle HIV/AIDS after he took over at the bank in 1995.

''Somehow the penny hadn't dropped,'' Wolfensohn told a bank conference here.

The global pandemic has killed nearly 22 million people since the 1970s, according to UNAIDS. It has laid waste to entire economies by decimating the work force and leaving entire communities populated only by the very old and very young.

Since 1985, more than seven million farmers have died of AIDS in the 27 most affected countries, according to the U.N. Food and Agriculture Organization.

''This was not just another malady. This was something that was really at the whole core of human development. And it was at the whole core of human tragedy for so many people but this was not just a disease, this was a human tragedy and that it could be averted and that it could be treated,'' Wolfensohn added, according to a transcript of his remarks provided by kaisernetwork.org, a unit of Henry J. Kaiser Family Foundation, a private charity.

Wolfensohn, who was appointed by then-U.S. President Bill Clinton, steps down at the end of the month and will be replaced by Paul Wolfowitz, the U.S. deputy defense secretary.

Thursday, May 19, 2005

Troubled Morgan Stanley tries to intimidate the press

Designed to Respond to 'Objectionable' Editorial Coverage
May 18, 2005

By Jon Fine


NEW YORK (AdAge.com) -- In the latest sign of advertisers’ heightened sensitivity to editorial coverage, embattled financial giant Morgan Stanley informed key publications of new guidelines that require its ads to be pulled as negative stories about it are published.


'Cancel all ads'
“In the event that objectionable editorial coverage is planned, agency must be notified as a last-minute change may be necessary. If an issue arises after-hours or a call cannot be made, immediately cancel all Morgan Stanley ads for a minimum of 48 hours,” reads a key section of its planned addition to ad contracts, according to executives who’ve seen it.
But that doesn’t mean you won’t be reading about the company in the business press. Thanks to its underperforming stock and some former executives’ attempts to unseat CEO Philip Purcell, Morgan Stanley has proved a plentiful well for news. And with the editorial/advertising wall at most publications, the guidelines could prove nearly impossible to accommodate.
“It would not be a practical condition at The Wall Street Journal,” said Publisher Karen Elliott House. “The ad department has no knowledge of what stories are running in the next morning’s newspaper.”
Unenforceable
Executives at some other publications spoke privately of how editorial policies meant that Morgan Stanley’s request could not be enforced to the letter, although marketers’ ads are sometimes subject to “pull policies” in which, under certain conditions, ads are removed from editions covering the marketers in question.
Among the publications that have received that directive or have had other discussions concerning Morgan Stanley with its media agency, Publicis Groupe’s Starcom USA, according to executives with first-hand knowledge of the situation, are Gannett’s USA Today; Pearson’s The Financial Times and The Economist; McGraw-Hill Cos.’ Business Week; The New York Times and Time Inc.’s Fortune. Executives and their representatives declined to detail how such directives, and publications’ individual “pull policies,” were handled internally. A spokeswoman for Dow Jones & Co.’s Wall Street Journal said the paper was contacted about the policy.
No comment
A Morgan Stanley spokeswoman declined to comment. A spokeswoman for Starcom referred calls to the client.
Given Morgan Stanley’s recent woes, its demands surprised few, even if they are new, and relatively new for the financial-services category.
Publishing executives also said there’s been a marked increase in such directives in recent years. “Absolutely,” said one high-ranking editor who wished to remain anonymous. “There’s a fairly lengthy list of companies that have instructions like this.”
The editor placed Enron as the turning point for companies expressing concerns over appearing anywhere near related coverage. Others referenced Sept. 11. Time Inc.’s People received criticism for failing to pull several marketers’ ads from an issue that graphically depicted the toll of that day.
$10.5 million
By far the biggest print outlet for Morgan Stanley's advertising is the Journal. Last year, according to TNS Media Intelligence, it took in over $10.5 million from the financial heavyweight, and for the first quarter the Journal scored more than $1 million. Last year Business Week, Time and Newsweek all notched over $2 million from Morgan Stanley.
Executives at Time and U.S. News, which took in more than $1 million from Morgan Stanley last year, refused to discuss arrangements with advertisers.

Wednesday, May 18, 2005

Mirror reflections: fundamentalism and the market economy

From openDemocracy (by Allenna Leonard) back in May 2003:

Mirror reflections: fundamentalism and the market economy

By Allenna Leonard

Created 2003-05-28 23:00

Since the destruction of the World Trade Center, both terrorism (with its links to Islamic fundamentalism) and intensified security (with its encroachment on civil liberties) have been part of our lives. As a practising cybernetician [0], I have asked myself what perception of circumstances could have led to the terrorists’ acts of hopelessness and defiance? In short, what were they reacting against?
The market’s overweening power

The extent to which the rules of the market economy trump any and all other legitimate concerns has struck me for some time. It seems the market economy is as rigid in its demands as any ayatollah.

As a ‘cradle capitalist’ living under a liberal government, I find this irritating and distasteful. So, it is predictable that some denied access both to the comforts of a consumer economy and to the rights of modern citizenship find these demands intolerable. If ruling elites flaunt their wealth while the majority of people live in poverty, discontent is inevitable.

As my partner, the late pioneer cybernetician Stafford Beer [0] was fond of saying, “The purpose of a system is what it does”. The current system produces luxury at the top, anxious comfort in the middle, and misery at the bottom.

One of the activities Stafford and I enjoyed was touring the cathedrals in Britain. A favourite was Durham Cathedral, with its 900 years of history. What impressed me most was the sheer reach of the Church. The Prince Bishops [1] of Durham had their own army, minted their own coin, directed trade and industry, provided education, sponsored the arts and determined social relations as well as pronouncing on the theological, moral and ethical questions of the day. The Church even had its own legal system, and its wrongdoers were not subject to the king’s law.

Today, it would be hard to refute that such influence is held by the market. It is so much a part of our environment that we don’t notice how inescapable it has become. Economic considerations routinely conflict with the preservation of the natural environment, human rights and social justice, and they usually prevail.

Not even the rights of small countries to support a viable agricultural and industrial sector, or of large countries to protect their populations from being made guinea pigs of genetically modified foods, are safe. International trade agreements such as Gatt and Nafta [2] protect commercial interests, but there is no comparable international protection for human beings or for nature.

Yes, we will protect the environment if it isn’t too costly: even better if we can develop new industries that will earn higher profits than the polluting ones. Yes, human rights are important, but not important enough to turn away from cheap oil, cheap labour and rich markets. Yes, it would be nice if the small banana producing countries in the Caribbean could earn a living, but we mustn’t allow exceptions to trade agreements that favour large plantations, even if that tilts farmers toward growing illegal drugs to survive.

And yes, it would be nice if ordinary people in countries run by despots had legitimate means to address their grievances and achieve their dreams. But, unless these despots openly defy the United States, it’s not our job to intervene, even if that leaves an open field for those who use religion and its promise of rewards in the afterlife to motivate people to violent conflict and terrorism.

The west spurns its friends

The west has a poor record of supporting informed and progressive leaders in developing countries. For example, Mohammed Harbi [3], exiled from Algeria to France, has received death threats from the Algerian secret police, the radical Islamists and some ex-pied noir settlers who have not forgiven him for his role in Algeria’s National Liberation Front.

Ezatollah Sahabi [4] of Iran became a dissident after the CIA replaced Iran’s president, Mohammad Mossadeq, with the monarchy. He was imprisoned by the Shah and then again by the Islamic Republic after he criticised them for their repressive practices. With power held by dictators, beholden or not to the west, and no space for democratic dissent, radical religious elements are likely to become the only opposition.

In Iraq, with the secular despotism of Saddam Hussein defeated, only fundamentalist religious forces are politically well-organised. It is not certain that the United States will be willing or able to stay until secular political groups can acquire enough legitimacy to govern. President Bush’s unwillingness to involve the UN in a meaningful way and his distribution of lucrative contracts to political supporters at home won’t help this process.

Two forms of religion

The system we have is perfectly designed to get the results we’re getting. Although no one could deny the improvements in human life and standard of living achieved through market economies, or religion for that matter, neither has the requisite variety to address the full range of human concerns.

To some extent, the great institutions of the market economy have realised this. A recent World Bank report [5] sounds the alarm about a number of acute problems; for example, while goods are moving more and more freely, many people are trapped behind political boundaries in desperate circumstances.

There are a number of similarities between the demands of fundamentalist religions and those of the market economy. Fundamentalist versions of religion and economics are known for brooking no deviation from their central concepts and for taking many of their own precepts literally even in the presence of disconfirming evidence.

As participants in the market economy, we are called to attend to advertisements [6]. On TV, commercials may run four or five times an hour for four minute intervals. How often can one open a newspaper or a magazine, without going through the ads? Where can one walk down a main street without seeing signs and billboards?

There are ads on subways and before feature films. Some ladies rooms present you with noisy commercial messages on a video screen if you want to dry your hands. Similar screens are being piloted in the back of New York taxis – one of the few commercial spaces left where people enjoyed some privacy. And the internet! Is that so different from ‘in your face’ religion with its frequent demands for public observance?

One of the distinctions between fundamentalist and modern religions is the way they address children. While modern religions teach children understandable lessons that relate to their own experiences, fundamentalist versions ask children to take on concepts that are far beyond their comprehension.

In television advertising, they actually speak about the ‘two to eleven year old market’. At the younger end of this ‘market’, they don’t even know what a commercial transaction means. Older children and teenagers do, but they are easily manipulated by advertising into making choices that are not in their own best interests. Commercials are dominated by snack foods that lay the groundwork for a lifetime of poor nutrition and expensive ‘branded’ toys and clothing.

Controlling minds, governing spaces

Many of us are put off by religions that regard people as of little value except as servants of their god. In the market economy, while we think we are customers because we have bought a ticket or subscribed to a magazine, we are also a ‘product’ and our value is based on our age, gender or income. This leads to bizarre outcomes such as people from the wrong postal code having their magazine subscriptions cancelled and discontinuing popular radio and television shows because their audiences were too old for the sponsors.

Fundamentalist religions have strict rules about what you can and can’t talk about. In the mall where I used to live, the Salvation Army wanted to continue their practice of soliciting contributions for the needy at Christmas. Many malls forbid this but, in our progressive community, it was allowed – on condition that they use cardboard bells saying ‘ding’ and ‘dong’. Real bells might distract shoppers.

Restrictions [7] on free speech in private commercial space are much tighter than most governments would even think of imposing. Unfortunately, there are fewer and fewer public spaces where public speech is feasible. This was a problem when I was active in local politics in the United States. We couldn’t afford TV or much in the way of newspaper ads and weren’t allowed in the shopping centres so we held up signs and passed out leaflets at traffic lights like squeegee kids. So much for public speech.

Religions often have an ‘elect’ with special privileges; so does commerce. Some well-known politicians raised ‘cash for questions’ or sold their attention to constituents who bought expensive tickets to receptions and, coincidentally, came to favour policies advanced by their contributors. Probably the worst example was when the second Bush administration invited the energy companies, including Enron, to formulate policy for the Department of Energy – and weren’t even ashamed to admit it.

This turns talking to one’s elected officials into a commodity. Fundamentalist religions and the market economy alike place little value on those outside their own circles. No money in poor countries to buy the branded drugs they need or develop them themselves (this after their herbal remedies are patented and they’ve been guinea pigs in the tests) – too bad. It is all ‘collateral damage’, but not wrong because there was no ‘intention’ that people die. Are they the market economy’s ‘infidels’?

Living in the “risk society”

Ulrich Beck [8] proposes we think of ourselves as a “risk society”. Such a society is as much about the distribution of “bads” (or risks) as about the distribution of goods. Often, vital information does not get through as the hierarchy of wealth and power frequently precludes technical people and workers on the ground from having genuine communication with executive and political decision-makers. The people at the top can’t possibly have the necessary experience to understand these concerns.

As Stafford Beer used to say, the president of the organisation has the same size brain as the janitor. How can good decisions be made at the top without effective communication channels at lower levels? When catastrophes occur, it’s difficult to hold anyone accountable.

It has been widely accepted that the market is inadequate at calculating and accepting the full costs of its actions. Indeed, the practice has been to exaggerate the benefits while minimising the costs and structural adjustments. This phenomenon is most easily measured in the environmental field but it has equally serious impacts on social justice and human rights. The rules of the market drive behaviour in this direction although individual business people might prefer other alternatives.

With so many real demands for fairness, justice and a decent life falling on the deaf ears of the market economy, what else would we expect but a fundamentalist alternative with an equally implacable set of constructs based on intangible rather than tangible goals? This is no less true because some leaders in both camps are in it for personal power and wealth.

If we want to strengthen the hand of Islamic (and other) moderates [9], then they have to be able to achieve, and be seen to achieve, some real gains. The market economy extols flexibility when it comes to expecting workers to be mobile and show up if and when needed, whether or not companies incur any continuing obligation to them, move factories to cheap labour zones, or invest pension funds in corporate adventures.

Would it be impossible to pay living wages, or to make respect for human rights a condition of doing business? No amount of security can eliminate the micro-revolts of terrorism as long as there are people who are willing to die to inflict damage. The only way is to eliminate the sources of hopelessness and rage that fuel such profound discontent.

Reconfiguring Spaceship Earth

Polarities are dangerous if one cannot recognise that each pole can have more than one opposite. The opposite of one fundamentalism could be another, or it could be pluralism. The opposite of modernism doesn’t have to be reactionism or selective nostalgia for past values: it could be a rethinking of what it means to be passengers on Spaceship Earth.

The field of cybernetics and systems has much to contribute to the necessary public debate. It embraces complexity and the parallel perspectives of observers of a probabilistic world. It recognises chains of feedback loops that may have an effect far from, and disproportionate to, their origins. It takes as given a number of process laws, such as the ‘law of requisite variety’ that states that a regulator of a system has to have as much variety at its disposal as the system it is trying to regulate. Does any public body presently have the variety to regulate, say, the biogenetics industry?

A cornucopia of concepts, models and tools – many of them interdisciplinary – are on offer.

Critical systems theory, hermeneutics and experimental epistemologies look at power relations, assumptions and frames of reference.

Kelly’s Personal Construct Theory, systemic anthropology and family systems deal with individuals and small groups.

Beer’s [10] Viable System Model and Russell Ackoff’s Interactive Planning are among the tools that address organisational structure; designing in as much autonomy and democracy as the situation allows.

Forrester’s System Dynamics and other simulation packages, applications of Hubert Maturana’s basic research on biology, Prigogine’s work on non-linear systems, help understand the interaction of traffic patterns as well as chemicals. All draw upon understanding dynamic behaviours and how they interact.

The systems field has used its own concepts to pioneer approaches designed to make debate more authentic and inclusive – and used some of their own professional conferences to try them out. (See the New Economics Foundation’s Participation Works [11]: 21 techniques of community participation for the 21st century, 1998).

Beer’s Team Syntegrity process is a good example: it draws upon geometry, neurophysiology, communication theory and psychology in an intense planning protocol that shares maximum information in a non-hierarchical format.

It would be nice, but not necessary, for a political party to take on this body of work. All of us who have a stake in this complicated and confusing world have a duty to make public processes work. If we can’t do this, we will find ourselves in a dystopia built by the short-sighted and whoever wins – at whatever cost – the battle to impose a simplistic solution.

The first step? Start talking. Ignore soundbites and spin doctors. Start today using today’s tools to address today’s problems.


Allenna Leonard [12] is president of the American Society for Cybernetics. The views expressed here are her own and do not reflect those of the Society.


Links:
[1] http://www.thenortheast.fsnet.co.uk/Prince%20Bishops%20of%20Durham.htm target=_blank
[2] http://www.citizen.org/trade/nafta/index.cfm target=_blank
[3] http://www.iht.com/articles/87776.html target=_blank
[4] http://www.iranian.com/Opinion/2002/April/Sahabi/ target=_blank
[5] http://publications.worldbank.org/ecommerce/catalog/product?item_id=2039587 target=_blank
[6] http://www.adbusters.org/magazine/ target=_blank
[7] http://www.nologo.org/ target=_blank
[8] http://tcs.ntu.ac.uk/books/titles/rs.html target=_blank
[9] http://www.unc.edu/~kurzman/LiberalIslamLinks.htm target=_blank
[10] http://www.dsl.org/faq/beer/ target=_blank
[11] http://www.neweconomics.org/default.asp?strRequest=pubs&strContext=pubdetails&intPubID=16 target=_blank
[12] mailto:allenna@attglobal.net

Sunday, May 15, 2005

Corporate America Pulling Back Pension Safety Net

By Peter G. Gosselin Times Staff Writer
Sun May 15, 7:55 AM ET

WASHINGTON — Last week's court decision permitting United Airlines' parent to dump its pensions on the federal government is part of a sweeping trend that could make the nation's employers more competitive, but at the cost of leaving workers and their families bearing big new risks.

In a nutshell, a broadening swath of corporate America is retreating from the safety-net business and is shifting responsibility to employees.

The decision by a Chicago bankruptcy court focused on the problems of a company strapped with $6.6 billion in pension costs. But the court's solution is one that even healthy firms are seeking to copy in one fashion or another, shifting benefit costs away from themselves and making fewer promises to their employees.

"People like to think of employers as social welfare organizations, but they're not," said Sylvester Scheiber, a partner with the financial consulting firm of Watson-Wyatt and a member of President Bush's 2001 Social Security Commission. "In an increasingly competitive world, they don't have room to do much else but focus on the competition."

Most U.S. companies have accomplished by other means much of what United Airlines did by defaulting on its pension obligations.

Employers of almost 30% of the nation's private sector workforce no longer offer the kind of pension where responsibility for managing retirement money and delivering benefits rests with the company. Instead, these firms make contributions to employees' retirement savings, perhaps through tax-deferred 401(k) accounts, but it's up to individuals to manage the money and suffer the shortfalls if any occur.

Employers of half of the workforce offer no retirement help whatsoever. The remaining 20% of workers are enrolled in traditional pensions, a percentage that has fallen by half in the last 25 years, according to Labor Department statistics and estimates by Boston College's Center for Retirement Research.

Many firms have begun to beat a similar retreat from employer-provided healthcare insurance.

The number of big company employees (those with 200 or more workers) in line for retiree health benefits has plunged from 66% in 1988 to 36% last year, according to the Kaiser Family Foundation, a nonpartisan health research group in Menlo Park, Calif. With health insurance rates for current employees posting double-digit jumps, employers have shaved an estimated 5 million workers from their insured rolls since 2001. And they have passed along many of the recent cost increases by nearly doubling the amount — to $222 a month — that employees must kick in for a typical family plan, according to Kaiser.

In addition, some companies have turned to health savings accounts. These were proposed by the president and approved by Congress in late 2003 and became available last summer. They have some of the same characteristics as 401(k) accounts in limiting firms' responsibilities and leaving it up to individuals to manage the money in them.

The number of people covered by health savings accounts has more than doubled from 438,000 last September to more than 1 million, according to America's Health Insurance Plans, the industry's Washington-based trade organization.

In a little-noticed report last year, the American Benefits Council, chief lobbyist for large corporations on benefit issues in Washington, offered a 10-year vision of employees replacing employers as the chief providers of retirement plans and health insurance.

"Individuals … should assume primary responsibility … for their own financial security," the report said. "Employers should be primarily responsible for sponsoring programs that help workers … in their efforts to achieve and maintain personal financial security."

Such an approach appears to be cut from the same cloth as the president's "ownership society" agenda. A key element of that is his proposal to let most Americans divert a portion of their Social Security payroll taxes into individual investment accounts in exchange for a reduction in traditional benefits. In both the corporate and administration plans, individuals would bear bigger responsibilities and could reap bigger rewards for making good financial decisions.

"We're moving from a benefit system that's employer-controlled and -provided to one that is employee-controlled," said benefits council president James A. Klein.

"That's frightening in some respects," he said, but quickly added, "It's encouraging too, because we're going to help individuals be prudent health and retirement consumers."

Some analysts find that prospect dubious.

"We're moving back to a world that existed in the early 20th century when only an elite group of companies provided pensions and some degree of career employment," said Sanford Jacoby, a UCLA economist and author of "Modern Manors," a study of employer-provided safety nets. The only reason firms can drop pensions, Jacoby said, is that "they have the fig leaf of 401(k)s."

Kaiser foundation executive vice president Diane Rowland said the theory behind cutbacks in employer-provided health insurance "is that putting consumers on the front line of healthcare consumption will constrain costs." But, she added, "what works when you're purchasing a car or buying a toaster may not work when you're making choices about life and death."

In part, companies are constrained from completely getting out of the safety-net business by the billions of dollars in tax breaks built into the system.

Washington will spend more than $200 billion this year on breaks for pension plans, 401(k)s and employer-provided health insurance. And taxpayers could be on the hook for more if efforts to shore up the strained Pension Benefit Guaranty Corp. don't work.

The federal agency, which insures private-employer pensions and will take over four of United Airlines' under-funded plans, suffered from a $23.3-billion mismatch of assets and long-term obligations last year, more than double the previous year's gap.

The other constraint is political. As the president's difficulties in selling his Social Security plan demonstrate, Americans have grown increasingly insecure as greater economic risk has been shifted to them over the last 20 years or so. They show little appetite for taking on more.

The dimensions of that shift can be seen in the widening swings of working families' income.

An analysis by The Times last year of a long-term, government-financed database of 5,000 families found that most families experienced income swings of no more than 16% in the early 1970s. But those swings had nearly doubled by the start of this decade. The greater the swings, the greater are the chances that a family will be in the midst of a downdraft when a crisis such as a layoff or illness hits. Then it can be very difficult to bounce back.

For some families, the first hint of the new risks they'd taken on came with the discovery that their two-earner incomes put them no further ahead than when they lived on the wages of one. For others, it was the recessions of the early 1990s and early 2000s when college-educated, white-collar workers who thought themselves immune to layoffs were suddenly in the economic bull's-eye.

But for millions, the tip-off was what happened to their 401(k)s in the aftermath of the 2000 stock market bust. The reversals left many skeptical of employer calls that they shoulder more financial responsibility for their retirement and doubtful about Bush's proposal for worker-controlled accounts in Social Security.

"I haven't been persuaded there's a crisis in Social Security, and I don't know that more accounts are the answer," said Virgil Young of Knoxville, Tenn., a retired FBI agent who describes himself as a staunch conservative. "It just doesn't seem to have clicked with people."

Although overshadowed by the Social Security debate, the shifting responsibility for bearing health costs is also a brewing political issue because it hits people of all income levels.

At the low end, health costs have risen so much that they now take a major bite out of minimum-wage workers' paychecks. Some workers must choose between a living wage and no insurance, or coverage and poverty.

At the high-wage end, studies show the lion's share of companies' benefits are paid to a small group of usually older, less productive workers. But as competition heats up, firms want to train their spending on those who contribute the most — which sets the stage for requiring older workers to bear greater costs.

In the end, said Stanford economist John B. Shoven, "risk is a sort of irreducible thing. It stays in an economy and has to be borne by somebody. So it keeps getting tossed around like a hot potato.''

Friday, May 13, 2005

Bigger Than the Social Security Crisis: Wasteful Spending on Prescription Drugs

http://www.cepr.net/publications/ss_drugs_2005_04.pdf

Saturday, May 07, 2005

Drug Makers Reap Benefits of Tax Break

From the New York Times:

By ALEX BERENSON
A new tax break for corporations is allowing the biggest American drug makers to return as much as $75 billion in profits from international havens to the United States while paying a fraction of the normal tax rate.

The break is part of the American Jobs Creation Act, signed into law by President Bush in October, which allows companies a one-year window to return foreign profits to the United States at a 5.25 percent tax rate, compared with the standard 35 percent rate.

Any company with profits in other countries can take advantage of the law, but drug makers have been the biggest beneficiaries because they can move profits overseas relatively easily, independent analysts say.

The money the companies are bringing home has come from many years of using legal loopholes in the tax law to aggressively shelter their profits from United States taxes, tax lawyers say. While the companies' tax returns are private, fragmentary information about their tax payments is buried inside their annual financial statements.

Those figures show that the drug makers have told the Internal Revenue Service for years that their profits come mainly from international sales, even though the prices of medicines are far higher in the United States and almost 60 percent of their sales take place in America.

Representatives of most of the big drug companies declined to comment beyond their annual reports, but in a statement Eli Lilly noted that several factors depressed its United States profits. Pfizer said it was following the intent of the law.

Though the companies stand behind their accounting, financial analysts and tax lawyers say that the drug makers' claim defies reality and that their profits come mostly from sales in the United States. But the I.R.S. lacks the resources to challenge the companies effectively, the analysts and lawyers say. As a result, the six major companies - Pfizer, Johnson & Johnson, Merck, Bristol-Myers Squibb, Wyeth and Lilly - collectively pay a federal tax rate of less than 15 percent on their worldwide profits, with some companies paying much less.

Already, four of the six drug makers have collectively announced plans to return $56 billion in profits to the United States. Two others say they are still considering but could repatriate an additional $18 billion. Had the six companies faced standard federal taxes on those profits, they would have paid $26 billion to the United States. Instead, they will pay less than $4 billion. Chris Senyek, an accounting analyst at Bear Stearns, said drug companies would probably make up about half of all the money repatriated by publicly traded companies.


During this window, returning money to the United States is to the advantage of the companies because they can spend the cash here rather than having to use it overseas as tax laws generally require. Lawmakers have said their main intention for the law was to encourage American companies to build new operations and hire workers. Congress passed the law in response to pressure from the European Union to resolve a long-running trade dispute.

Although the act is intended to create jobs, Pfizer said last month that it would cut its annual costs by $4 billion over the next three years. Pfizer, which will repatriate at least $28 billion under the act, did not say how many jobs it planned to eliminate, but analysts expect the company to shrink its work force by thousands of people. Mr. Senyek said the law would create an insignificant number of jobs because companies can easily work around provisions in the law meant to stop them from using the money for dividends to shareholders rather than new hiring.

After the break expires, companies will probably go back to stockpiling profits overseas as they wait for another tax holiday in a few years, tax lawyers say.

The major drug makers use a variety of complex but legal tactics to move profits from the United States to low-tax countries like Ireland and Singapore where they have large manufacturing operations, said H. David Rosenbloom, director for the international tax program at New York University Law School.

"The law is complicated, but what's going on is perhaps less complicated," he said. "They're doing everything they can to maximize their profit in Ireland and minimize the profit in the countries where the sales occur."

The government can challenge the way the companies allocate their profits internally. But the companies have usually been able to defeat the I.R.S., Mr. Rosenbloom said.

"There's a limit to what they can do, because these cases are huge. They're very expensive," Mr. Rosenbloom said of the I.R.S.

The companies declined to discuss the specific strategies they use to minimize taxes. But the result of their efforts can be seen in a remarkable set of figures inside their annual financial reports.

Pfizer, the world's largest drug company, said that in 2004 it had only $4.4 billion in pretax profits in the United States, compared with $9.6 billion internationally, though most of its sales came in the United States. The company says that its profit margins on international sales were almost three times as high as on American sales.

Other companies reported similar trends. The biggest imbalance occurred at Eli Lilly, which reported that it had about $200 million in profits from United States sales in 2004, compared with $2.8 billion in profits from sales everywhere else.

Because they report relatively low United States profits, the companies pay little in American taxes compared to their profits. Pfizer reported paying only $1.2 billion in state and federal income taxes in 2004, 9 percent of its worldwide pretax profit. Excluding a one-time payment related to its plans to repatriate money it has sheltered overseas, Lilly reported paying just $37 million in state and federal taxes last year, only 1 percent of its worldwide pretax profit.

In its statement, Lilly said product liability suits, one-time charges related to business restructurings, increased pension expenses and research and development costs all cut into profits here, the company said.

"The intent of this legislation is to encourage companies to invest income earned outside the U.S. in their U.S. operations," Pfizer said in a statement. "That is what Pfizer and more than 300 other U.S.-based companies are doing."

Collectively, the six drug makers paid about $6 billion in federal and state taxes, a fraction of their pretax worldwide profits of $43 billion. Johnson & Johnson accounted for about half the American taxes paid. It garners more than half of its sales from consumer products and medical devices, whose profits are harder to transfer overseas.

The companies' assertions that they are more profitable overseas than in the United States is hard to believe, said Dr. Alan Sager, director of the health reform program at the Boston University School of Health.

Prescription drug prices are far higher in the United States than in other industrialized countries, where prices are generally government-controlled.

In one typical example, a three-month supply of 40-milligram tablets Lipitor, a cholesterol-lowering medicine from Pfizer, costs $305 at Walgreens.com, the Internet site for the largest United States pharmacy. An Internet pharmacy in Canada lists the same medicine for $174.

"I'm really at a loss to find a reasonable explanation for the phenomenon, a real-world explanation," Dr. Sager said. Outside the United States, "there just doesn't seem to be any place on earth for the high profits to be generated, which leaves us with the extraterrestrial options."

Wall Street analysts who follow the pharmaceutical industry also say most of the drug makers' profits come from the United States.

David Moskowitz, an analyst at Friedman, Billings, Ramsey, estimated that at least 60 percent of the drug industry's worldwide profits come from the United States. Higher American drug prices more than make up for higher marketing costs here, he said. Other analysts estimate that as much as 75 percent of the industry's worldwide profits are generated in the United States.

But companies can hide those profits from the I.R.S. by moving their drug manufacturing overseas, said Martin A. Sullivan, contributing editor of Tax Notes, a nonprofit journal that examines tax issues. Companies transfer drug patents to their own foreign subsidiaries, he said.

The subsidiary then helps pay for research on the drug. If the medicine is approved for sale in the United States, the subsidiary manufactures the drug for a few cents a pill.

The pills are then shipped to the United States, where they are sold to a pharmacy or a wholesale company for several dollars each. But the parent company claims that almost all the profit should go to the subsidiary, not to the parent in the United States.

"Then the name of the game is to have that foreign subsidiary pay as little as possible back to the United States for the rights to all that income," Mr. Sullivan said.

The law will encourage drug makers to become even more aggressive about shifting American profits overseas because the companies will assume that they can lobby Congress for another tax holiday in a few years, said Sheldon Cohen, senior counsel at Morgan, Lewis & Bockius.

"I've always been against tax holidays or amnesties on the basis that if we do this, it tells companies or individuals that we'll do it again," Mr. Cohen said.

Manufacturing Consent (Video)

The classic Chomsky-Herman study on media propaganda in the US from Google Video.

Some background on the "Propaganda Model" from Wikipedia.

Wednesday, May 04, 2005

A Dangerous Imbalance

A Dangerous Imbalance

By Mark Weisbrot

In 2004, the U.S. trade deficit came in at a record 5.3 percent of GDP. Over the last three months, it is running at about 6 percent of GDP. The data from February broke another record.

Clearly this cannot go on indefinitely. If the U.S. trade deficit were to simply stay where it is, within 19 years America's net foreign debt would exceed the entire value of its stock market. That will not happen. Instead, the dollar will inevitably fall further, until U.S. foreign borrowing stabilizes at a sustainable level.

U.S. officials seem to be in denial about all of this.

"We view these figures as an affirmation that we're growing faster than our trading partners by as much as 2 percent, and we need them to take steps so they can grow and buy our products," Rob Nichols, the spokesman for Treasury Secretary John W. Snow, said recently.

But increased economic growth on the part of America's slower-growing trading partners - mainly Europe and Japan - cannot come close to solving the problem. If these countries had grown 2 percentage points faster annually over the past five years, the U.S. trade deficit today would only be $45 billion to $60 billion less. It would still be over $600 billion.

So the dollar will have to fall, and if U.S. officials wanted to help solve this problem, they would be talking it down, instead of trying to wear the U.S. trade deficit as a badge of honor. Or they could try to arrange, with other countries, an orderly decline of the dollar.

Of course this adjustment will cause disruption for developing countries dependent on exports to the United States, since every dollar of earnings will cover less of their costs at home.

Global textile quotas also ended in January, meaning that China will displace many developing countries that previously had some space reserved for them in the United States and other rich country markets. Chinese exports of textiles and apparel to the United States surged in January.

This is a one-two punch for many developing countries, from Central America to Southern Africa to Bangladesh. Millions of their jobs are at risk just from the end of the quotas.

These kinds of miscalculations and strategic missteps are often wrongly attributed to "free trade" or "free market" excesses on the part of policy makers and international institutions. But these labels misrepresent the problem.

The Group of 7 countries, and the institutions that they control - for example the IMF, World Bank and WTO - have not, on balance, succumbed to the play of market forces. Rather they have promoted a whole set of specific economic policies - including fiscal, monetary and exchange rate policies, export-led growth, liberalization of international trade and capital flows - and sometimes even specific industries and agricultural crops.

They have also rewritten the rules of global commerce in ways that significantly restrict international trade and competition, at enormous cost to developing countries - for example, in the case of patent and copyright protection

The lack of preparation for the expiration of textile quotas is evidence that these economists and institutions did not plan very well. The over-dependence on an unsustainable expansion of the U.S. import market is another indication of bad economic development planning.

Unfortunately, this latter mistake is ongoing. Washington continues to encourage its Latin American trading partners, and others, to make more costly concessions in return for access to a U.S. market that will actually shrink - measured in non-dollar currencies - over the next decade.

Of course the most obvious mark of economic failure is the sharp decline in economic growth in the vast majority of low- and middle-income countries outside of Asia over the last 25 years. Income per person in Latin America, for example, has grown by only about 12 percent in the last 25 years. In just 20 before that (1960-1979), it grew by 80 percent.

It seems that most developing countries grew faster when their own governments had more say in development planning, and international institutions had less. Governments were often corrupt or inefficient, and they made mistakes. But their mistakes appear to have been less costly than today's conventional wisdom, from the point of view of economic growth and development.

Tuesday, May 03, 2005

The problem with progressive price indexing

Brad DeLong links to an article by Dean Baker on the regressive impact of the progressive indexation of social security benefits. Some points Baker makes include:

In 2030, a middle wage earner ($36,500 in annual earnings in 2005) would see a benefit cut of 12.2 percent, while a high wage earner ($58,400 in 2005) would see a benefit cut of 13.2 percent;

In 2050, a year when the Congressional Budget Office projects that Social Security would still be able to pay full scheduled benefits if no changes are made, middle wage earners would see a cut equal to 21.1 percent of their scheduled benefit, while high wage earners would see a cut equal to 28.3 percent of their scheduled benefit; *By 2080, the benefit cut for middle wage earners and high wage earners will have grown to 40.2 percent and 50.1 percent, respectively. At this point, low earners ($16,400 in 2005) and maximum earners ($90,000 in 2005) will be receiving almost the same benefit, even though a maximum wage earner will have paid more than five times as much money into the Social Security system;

Measured relative to retirement income, the benefit cuts implied by progressive indexation are regressive. The projected cut in benefits for a middle wage earner in 2080 is equal to 26.9 percent of their retirement income, while the implied cut for a maximum wage earner would be equal to just 11.9 percent of their retirement income.

When coupled with private accounts, the benefit cuts create a situation in which the highest earning workers will owe the Social Security system an amount of money that is larger than their remaining Social Security benefit, if they opt for a private account. President Bush has created no mechanism through which this money can be reclaimed. This creates a situation in which the highest wage earners will be able to place money in a private account without any offsetting cut in benefits. As a result, the implied cut in benefits will fall even more sharply on middle--income workers