The Next City
December 21, 1996
Peering through the smoke
Ashes to Ashes: America’s Hundred-Year Cigarette War, the Public Health, and the Unabashed Triumph of Philip Morris
by Richard Kluger
(Alfred A. Knopf, 1996. 807 pages) $45
IF RICHARD KLUGER’S BOOK WERE A PACK OF CIGARETTES, I would have trouble inhaling at first, but I would soon get hooked. The introductory chapter is a cannonade against tobacco. With all the balance and reason of a Ralph Nader on amphetamines, Kluger sets smoking on the same level as nuclear weaponry, hatred between nations and desecration of nature. Smoking may even have killed more people than the wars of this century. Readers who can make it past this brief outburst of rhetoric can settle down to a fascinating commercial history of the American cigarette, told by a professional reporter of high calibre.
The rise of the cigarette is the story of modern commerce. The cigarette industry led the way in developing the mix of research, management, retailing and marketing on which large corporations model themselves today. Such economic brio could not have been foretold 120 years ago. After the American Civil War, most tobacco was either chewed, smoked through pipes or rolled into cigars. Cigarettes were made from the dregs left by these more popular products and rolled with flavoring pastes that were rumored to include dung and urine. Either you paid a premium for luxury cigarettes or you took your chances with the common stuff. It is no surprise that most people stayed away.
What brought smokers in was Buck Duke, a teenager from North Carolina with a shrewder grasp of the human soul than Plato or Kant ever had. Duke grew up in a family that earned a modest living farming tobacco. He took his leap into history by seizing an opportunity that the nation’s small-thinking cigarette makers had rejected — a new machine that could reliably roll 70,000 cigarettes a day, the output of 45 manual workers. Duke bought the machine and swore its exasperated inventors, the Bonsack brothers, to be his semi-exclusive suppliers. The Bonsacks would charge all competing buyers a 25 per cent premium over the price paid by Duke. Duke then set about improving cigarette blends and tobacco breeds. He matched his technical grasp of manufacturing with a modern view of marketing. Almost all profits were plowed back into advertising. Duke was investing in something called goodwill, an asset he understood would take years to build before paying off mightily. As a young millionaire he did not scruple to pound the pavements of New York late at night to drop in on corner stores, ask what brands were selling, what consumers were looking for in a smoke, and whether the owner would put Duke’s brands on window display — for a premium of course. With such tactics he caught his competitors napping. By the turn of the century he had bought most of them out, expanded into cigars and chews and brought his company, American Tobacco, to the head of tobacco manufacture and marketing in the United States.
Anyone this talented and rich is bound to rouse jealousies. On the pretext of breaking up a price-fixing monopoly, the Justice Department forced Duke to disband his tobacco trust. Duke’s spirited defence against the accusation of manipulating the market was, “We happen to have more of the brands that please the people, and consequently we sell more tobacco.” This sounds similar to Michael Milken’s explanation on how he got rich selling high-risk-high-yield debt, and to Bill Gates’s defence of Microsoft. Both of these 1980s billionaires claim they made their fortunes fashioning products that consumers wanted at prices no one else could beat. On reading the rest of Richard Kluger’s book, it is hard not to believe that Duke was right.
From the 1920s to the present, the cigarette industry has molded itself to the most intimate contours of its clients’ desires. Far from being kings, tobacco executives emerge from these pages as slaves to the public whim. The industry followed the public’s wish for cigarettes with low tar and few noxious elements. The major cigarette concerns funded scientific research that dissected cigarette smoke in trying to discover tobacco’s harmful effects. Over the years, the industry poured hundreds of millions of dollars into making cigarettes safe. During the 1980s, RJR Nabisco sunk $300 million dollars into its smokeless cigarette project; a project that failed because smokers wanted to suck down smoke, not steamed tobacco fumes.
If the industry’s efforts have not made smokers safe from cancer and emphysema, it seems that smokers themselves are to blame. When the industry introduced filters, its clients increased their cigarette uptake. This sort of phenomenon was first identified by University of Chicago economist Samuel Peltzman in the 1970s as the “law of offsetting behavior.” After accounting for all factors that might possibly have led to the falling traffic mortalities of the 1970s (such as an ageing population), Peltzman found that forcing people to wear seat-belts did not lower traffic mortality rates. Drivers understand the protective value of seat-belts. They press harder on the pedal, to the point where the risk of death rises back to its old level. Air bags, and anti-lock brakes have done little to prevent road massacres for the same reason. Consumers of deadly products are eerily well informed on the risks and adjust their behavior to find the level of deadliness that suits them best.
The notion that consumers are rational beings who understand risks, choose to become addicted, and face the consequences like adults, is not prominent in Richard Kluger’s book. In his eyes, the cigarette industry lulled smokers into a sense of security by questioning the link between cigarettes and cancer. Cigarette makers may not be Satan’s little helpers, but they come close. Kluger believes they could have done a great deal more than they did to warn smokers of the dangers of their product, and that government should have clamped down on the industry much harder.
Hostility to smoking goes back far. As Kluger notes, in the 17th century, the Mogul emperor of Hindustan ordered smokers’ lips split on the grounds that their habit invited debauchery. Kluger’s more modern hostility is based on the notion that many people do not understand the addictive nature of smoking and its true costs. Smokers are backward looking. They only remember the joys that smoking brought them and do not think about what suffering the future holds. We need government to pluck the cigarettes from their uncomprehending mouths and drag these poor souls back to a sane way of living.
Kluger might have shown greater respect for the reader’s intelligence by mentioning recent research that suggests smokers are not complete dunces. Economist Gary Becker won the Nobel Prize in 1992, in part, for showing that addiction is a matter of rational choice by consumers. “Rationality” means that consumers look forward and think about the benefits and costs that smoking will bring them in years to come. Becker and other economists have looked at patterns of smoking over time and have found that the numbers accord with the theory. Rationality may explain why the proportion of smokers in the population has halved over the last forty years. Since the 1950s, life expectancies have risen by more than 10 per cent in the U.S. and Canada. Incomes have more than doubled. To a rational smoker, this means his habit will rob him of more years of life lived at a higher income than before. In other words, progress gives us more to lose by smoking. No wonder people are quitting. With such a process of reason at work, who is Kluger, or anyone else, to appoint himself as his smoker’s keeper?
If the case for regulating smoking is questionable, the case for giving government this duty must rest on the faith that government will not bungle the task nor abuse its power. The great tobacco advertising ban that swept over a quarter of industrialized countries in the late 1960s and early 1970s is a prime example of bungling. A study of smoking trends in 22 OECD countries since the 1960s shows that cigarette sales rose slightly in the six countries that imposed a complete ban on advertising. This is not surprising. Cigarette companies have long known that advertising does not produce the demand for tobacco. It simply draws smokers away from other forms of tobacco such as cigars and chews, or away from the allegiance to competing cigarette companies. At most, a ban on advertising will freeze incumbent producers into their market shares. But with advertising gone, the costs of companies will fall, and so will their prices. The ironic result is a rise in cigarette smoking. If Kluger is aware of this study, he does not mention it. Instead he proposes an eight-pronged attack on the tobacco industry that includes higher taxes, a stricter ban on advertising and government oversight of manufacturing and marketing.
The problem with government regulation of social habits is that bureaucrats and politicians do not have the resources or information to tailor their policies to individuals. They can only send down sweeping solutions from on high. This may explain why governments have not been able to solve problems such as poverty and unemployment. The best regulation for a complicated behavior such as smoking may be that which comes from the advice of friends and family, and from the disapproval of colleagues. The process may be slower than a government crackdown, but the payoffs are greater. Moral progress can only come if people are allowed to choose between good and bad. Perhaps this is why a prominent thinker of the last century wrote, “Prohibition would work great injury to the cause of temperance. It is a species of intemperance within itself, for it goes beyond the bounds of reason in that it attempts to control a man’s appetite by legislation and makes a crime out of things that are not crimes. A prohibition law strikes at the very principle upon which our government was founded.” If Abraham Lincoln’s advice is kept in mind, readers can filter away the more intemperate parts of Richard Kluger’s book, to enjoy the story it tells of the rise of a great industry.
Reply to Filip Palda’s review of Ashes to Ashes by Richard Kluger
Why governments must regulate the tobacco industry
IN HIS REVIEW OF ASHES TO ASHES (Winter 1996/97), Filip Palda attempts to force a market theory on the data — basically, he believes that government should adopt a laissez-faire attitude to smoking and other activities where people put their lives at risk — and he conveniently ignores facts that do not jive with the market-model explanation. His theory does not explain smoking behavior very well.
Mr. Palda complains that the author, Richard Kluger, doesn’t treat consumers as “rational beings who understand risks, choose to become addicted, and face the consequences like adults.” Your reviewer assumes consumers are informed, yet for years the tobacco industry has lied about the health risks associated with smoking. People are aware of the risks largely due to the efforts of various non-smoking lobby groups and government regulations that require various warnings on cigarette packages.
Mr. Palda is also wrong to think consumers choose to be addicted. Most Canadians who become addicted to tobacco do so as children. According to Health Canada’s 1994 Youth Smoking Survey, 7 per cent of youths aged 10 to 14, and 24 per cent of 15- to 19-year-olds, smoked regularly. An even higher percentage were recent smokers who were not regular yet.
Studies of smoking behavior among children show them to be very well informed about the health risks without understanding how addictive nicotine is. Most believe that they will be able to quit. Two-thirds of female smokers aged 10 to 19 have tried to quit at least once. Over 30 per cent in each age group have tried to quit three times or more. Among boys, 60 per cent have tried to quit at least once, and 27 per cent have tried to quit three times or more. Forty-three per cent of male smokers aged 10 to 14 have tried to quit smoking.
Mr. Palda says consumers should face the consequences like adults, ignoring the fact that most smokers are not adults when they become addicted. Ninety per cent started under the age of 20; on average, they begin at 14. Even if smokers became addicted as adults, it is callous to just say, “take the consequences,” when public health policies can help people quit. An individual who does not start smoking by age 19 is very unlikely to ever start. In North America, the overwhelming majority of non-addicted adults choose not to start.
To reduce the health problems associated with smoking, public health policy should encourage children not to start smoking. Ashes to Ashes discusses at length the tobacco industry’s attempts to target children, including free cigarettes samples at rock concerts and advertising aimed at adolescents. Kluger would forbid free sampling of cigarettes and their sale in vending machines, and severely fine those selling to buyers under the age of 18.
Citing a study of 22 OECD countries that shows cigarette sales rose slightly in the six countries that completely banned advertising, Mr. Palda claims that “The great tobacco advertising ban that swept over a quarter of industrialized counties in the late 1960s and early 1970s is a prime example of bungling.” Banning advertising only reduces companies’ advertising costs, Mr. Palda believes, leading to lower prices and more cigarettes smoked. The logic sounds reasonable, but the study does not support it.
The evidence regarding cigarette advertising bans is anything but clear cut. While the OECD study does show a very slight rise, its authors (not Mr. Palda) are quick to state that the relationship between banning advertising and increased cigarette sales was not statistically significant. The study controlled for price and attributed the slight increase more to the disappearance of government regulated health warnings that accompanied the advertising. People became less aware of the risks involved with smoking and, so, were more likely to smoke.
Since banning cigarette advertising did not lower cigarette consumption, other policies should be pursued instead. Perhaps an antismoking ad which mocks the Marlboro Man could follow each cigarette commercial.
Mr. Palda believes the “best regulation for a complicated behavior such as smoking may be that which comes from the advice of friends and family, and from the disapproval of colleagues. The process may be slower than a government crackdown, but the payoffs are greater.”
In this I agree wholeheartedly. People are more likely to change their behavior if they believe in the change, rather than if they are forced. Since drunk driving became socially unacceptable, fewer people drink and drive, leading to a considerable decrease in drunk driving accidents in Canada during the last 20 years. However, we still need drunk driving regulations and police enforcement of drunk driving laws.
TO SURVIVE, THE TOBACCO INDUSTRY MUST RECRUIT new smokers. Because advertising aimed at adults primarily shifts brand loyalty, it must addict children and adolescents to replenish the declining number of adult smokers.
Government regulation can reduce the number of young smokers. According to the OECD study, increasing the price of cigarettes sharply reduces cigarette consumption, especially for young people, who on average have less disposable income. We also need government regulation to combat unequal power relationships. The market model assumes that many buyers and sellers of goods and services are informed, and that the marketplace determines prices and consumption.
In practice, corporations can use their great economic resources to thwart the relatively poor individual citizens who dispute the claims of cigarette manufacturers. With their wealth, companies can bribe politicians by making large contributions to their election campaigns and can hire lobbyists to turn government regulations to their economic interests. With their wealth, corporations can hire a legion of public relations types to lie and to misinform people by providing speakers to service clubs and school kits to teachers, by writing letters to newspapers, by putting out press releases, and so on.
The inequality in power is obvious. An individual has few hours and economic resources to devote to challenging the practices of the tobacco industry. In a democratic society, each citizen should have equal power in determining policies that affect such issues as public health. One way to do this is through elections, referenda, and government regulation. The alternative championed by Mr. Palda leads to domination by the wealthy and unscrupulous.
Health Canada (1994). 1994 Youth Smoking Survey. Cat. H49-98/1994E.
Spoke, Susan & Associates (1996). A Literature Review on Smoking: The Social, Psychological and Physiological Influencers Affecting Decisions and Behaviour.
Stewart, M.J. (1993). “The effect of advertising on tobacco consumption in OECD countries.” International Journal of Advertising, 12:155-180.
by Evan Morris, Regina
AFTER READING MR. MORRIS’S letter I got confused. Did I really write a book review in which I am “callous” toward addicts, in which I try to force market theory on data, and where I call for government to take a “laissez-faire” attitude when people put their lives at risk? In rereading my review, I could find no trace of the beast Mr. Morris sighted running loose in those pages. Perhaps what bothered him was that someone questions the antismoking position. On this count I plead guilty. Here are some of the antismoking claims about which I have doubts:
Claim no. 1: Smokers don’t know the risks. An expert in this field is Kip Viscusi. Viscusi engaged the New York survey research firm, Audits and Surveys, to ask 3,119 Americans about their knowledge of the dangers of tobacco use. Respondents — including smokers — heavily overestimated the risk that a smoker will develop lung cancer, and slightly overestimated the risk of death from smoking and the years by which smoking shortens a life. It is not clear why people overestimate the true risks of smoking. Perhaps inflated estimates are a way of protecting yourself against dangerous behavior, the way some people advance their wristwatches by five minutes to make sure they arrive on time.
Claim no. 2: People do not avoid smoking based on their evaluation of important information. The crucial question here is whether perceptions of risk influence behavior. If people can sense risk, and adjust their behavior to that sense, this suggests they are thinking, autonomous beings who do not need a bureaucrat in a nanny’s uniform to spank them for lighting up. Using a technique known as logistic regression, Viscusi isolated the effect of risk perceptions from other variables that might influence an individual’s decision to smoke. He found that the more risk a person perceives from smoking, the less likely he is to smoke. This means that people are using their heads and making choices. Including making the choice to become addicted and making the choice to end addiction. According to a 1990 report of the U.S. Department of Health and Human Services, even though 50 million Americans smoked, half of all American adults who once smoked had quit, and overall there were 38 million former smokers in the U.S. population. With rising perceptions of the risk of smoking came rising quit ratios so that today approximately 60 per cent of smokers will choose to quit their habit.
“Choosing” to become addicted sounds strange. Isn’t addiction an accident? As when Ulysses’s men got lost in Lotus land and could not stop themselves from munching magic flowers? If this is how you think about addiction then you have to believe that smokers get hooked without understanding the risks. As Viscusi’s research suggests, this view does not jive with the facts. Viscusi has the audacity to suggest that smokers are not ignorant of, or insensitive to, risk but simply have less fear of risk than others. He supports this view with wage data that show that smokers demand half the compensation for work in dangerous situations that non-smokers demand. Maybe smokers just have a different take on life. Forcing them to change might be like forcing Diogenes out of his barrel. Is anyone wise enough to perform the eviction without doubts?
What about children? Is smoking a rational choice for them? A 1974 study by psychologists F.
W. Schneider and L. A. Vanmastrig measured children’s perceptions of smoking risk. Over 99 per cent of children between 7 and 8 years of age believe that smoking causes cancer and shortens a person’s life. The majority of children also believe that it is hard to stop smoking. Viscusi’s own survey of teenagers between 16 and 21 bore out these results. He found that this age group had an even higher assessment of the risks of smoking than adults and that they had the same negative response to risk as adults. Namely “there is no evidence of younger consumers being lured into smoking in any disproportionate manner.”
Some young consumers of course do end up getting lured. Could not some government muscle protect them from the evils of tobacco? In a recent survey of U.S. research, social psychologist Steve Sussman and his colleagues found that the youngsters who are likeliest to become serious smokers have low self-esteem, are likely to abuse alcohol and drugs, and come from troubled families where parents did not care about their activities. Smoking may give youngsters good feelings that happier people can generate without the help of a drug. What this suggests is that efforts to stomp out smoking may simply push these people to look for another feel-good drug such as alcohol or Valium. Economists Rajeev Goel and Mathew Morey found evidence of this type of substitution. In a study covering 50 U.S. states between 1959 and 1982, they estimated that a 15 per cent rise in cigarette prices would lower cigarette demand by 15 per cent and raise liquor demand by 20 per cent. What these data hint at is that no advertising ban or cigarette prohibition is going to solve a problem created by years of family neglect. Perversely, an antismoking crusade might entice some youngsters to start smoking. H. L. Mencken noted this effect during the years of alcohol prohibition in the United States. “The benefits that were to come from the abolition of the open saloon, long damned as a constant temptation to the young, are not visible. On the contrary, the young are now tempted as the saloon, even in its most romantic and voluptuous forms, never tempted them.”
Claim no. 3: Tobacco companies are powerful concerns who control the market. Power is hard to measure, but consider this. In the late 1980s, tobacco companies tried to campaign against a California initiative that was hostile to their interests. In spite of an $8-million advertising campaign, the tobacco interests could not overcome the antitobacco interests who fought back with only $1 million in advertising.
Consider also that these supposedly powerful tobacco companies have seen a per capita consumption of cigarettes fall, almost to late 1940s levels. Advertising campaigns may have helped tobacco companies slow the decline (though the statistical debate on this point is unresolved in the economics profession), but growing public concern over health has outweighed industry propaganda. Advertising has mainly been about luring consumers from competing brands. Where advertising has been banned, some cigarette companies seem to have benefited. Economists Anthony Gyapong and Kwabena Brempong found that the 1970 U.S. tobacco advertising ban helped raise the profits of the established tobacco firms. Woodrow Eckard found a similar result and added that the advertising ban stabilized the market shares of established firms. It appears that the advertising ban was like a peace treaty that helped certain companies by putting an end to costly advertising wars.
If tobacco companies have the power to dictate terms to consumers, they have a strange way of showing that power. Richard Kluger’s book is in part the story of how the tobacco industry has scrambled to provide consumers with what they want: a safe smoke. In their survey of tobacco advertising between 1926 and 1986, D. J. Ringold and J. E. Calfee show that in the 1920s, cigarette companies were responding to consumer concerns about health. By the 1950s, an advertising war had broken out in which these companies were citing scientific data to lure smokers toward brands with low tar. Their main impediment to satisfying consumer health concerns was the Surgeon General. In the belief that all smoking is bad, he decided to frustrate tobacco companies in their competition to bring consumers a safer smoke (a view to which the American Cancer Society took exception). The Surgeon General continued his attempts to squash the search for a safer cigarette in 1989 when RJR Nabisco came out with the smokeless Premiere cigarette. In its attempts to stamp out smoking, the antismoking lobby appears willing to give smokers only one choice: Quit smoking or die. These are much harsher terms than the tobacco companies are offering.
In making these comments, please note I am not belittling the concerns of the antismoking lobby nor saying that this lobby is a monolithic group with no diversity of opinion. I do not smoke. For five years my sister and I pestered my father to stop smoking (we won). The purpose of my answer to Mr. Morris’s letter is to suggest that there are enough facts to make reasonable people pause before giving government the power to impose a standard of behavior on their fellows.
Eckard, Woodrow E. Jr. (1991). “Competition and the Cigarette TV Advertising Ban.” Economic Inquiry. 29:119-133.
Goel, Rajeev K. and Mathew J. Morey (1995). “The Interdependence of Cigarette and Liquor Demand.” Southern Economic Journal, 62: 451-59.
Mencken, H.L. Editorial in the American Mercury, December 1924. Reprinted in Politics of Moral Behavior: Prohibition and Drug Abuse. Edited by K.A. Kerr. Reading: Addison-Wesley Publishing Company, 1972.
Sussman, Steve, and Clyde W. Dent, Dee Burton, Alan Stacy, Brian R. Flay. Developing School-Based Tobacco Use Prevention and Cessation Programs. London: Sage Publications, 1995.
Mitchell, Mark L. and J. Harold Mulherin (1988). “Finessing the Political System: The Cigarette Advertising Ban.” Southern Economic Journal, 54:855-62.
Viscusi, Kip W. Smoking: Making the Risky Decision. Oxford: Oxford University Press, 1992. (This book also has the references to the work of Schneider and Vanmastrig and Ringold and Calfee).
Full House: The Spread of Excellence from Plato to Darwin
by Stephen Jay Gould
(Harmony Books, 1996. 244 pages) $32.95
IF DIVERSITY AND INCLUSIVENESS are the leitmotifs of our day, Stephen Jay Gould’s Full House is truly a book for our times. Gould, a Harvard professor of zoology and anthropology, rejects the conventional understanding of evolution, which sees a trend to complexity in the history of life. In Full House we learn that diversity, not complexity, is the true measure of excellence. Gould’s elaborate defence of this conclusion begins with a call to statistical conversion: We must kick our Platonic habit of representing full systems by a single exemplar, or essence, and get used to reading trends not as complete entities on the move, upward or downward, but as variations within whole systems — within “full houses.”
While Gould’s discussion of true trends may daunt the statistically challenged, it is guaranteed to delight the baseball fan and poker player alike. Many assume that .400 hitting has disappeared because batters just aren’t as good as they used to be. But Gould explains that the absence of a latter-day Ted Williams in our own house actually marks an overall improvement in play.
Baseball may well be a metaphor for life. As do the disillusioned fans, those who think that progress characterizes life’s history have focused exclusively on extreme values. They have followed only the most complex organism through time — not the full house — and are guilty of substituting its increasing complexity for progress of the whole. (Gould describes this phenomenon as a fine example of a very small tail wagging a large dog.) Careful observation of the whole reveals some striking facts — particularly the enduring presence of bacteria, which Gould claims has dominated life despite 3.5 billion years of evolutionary “progress.”
Reader be warned. This mental workout has merely been a warm-up for what Gould thinks all this really means: We humans may be pretty sophisticated, but our sense of place in the cosmos needs a little readjusting. With no “progress” characterizing life’s history, we must learn to see ourselves not as the pinnacle and centre of it all, but simply as one conscious and contingent member of a very full house.
The Irony of Free Speech
by Owen M. Fiss
(Harvard University Press, 1996. 98 pages) $27.45
IN THIS SLIM BOOK, Owen M. Fiss, Yale University’s Sterling Professor of Law, postulates that freedom of speech must be limited to protect it. He examines this counterintuitive argument in relation to the U.S. Constitution’s First Amendment, but analogy to Canada is not difficult.
Fiss’s arguments on pornography, hate speech and artistic grant allocation are perplexingly rife with straw men, missing premises and question begging. What, for example, can be made of his position that giving grant money to one artist restricts the freedom of others? Contradictorily, even as he makes this argument, Fiss supports regulation to “turn down” the volume of pornography and hate speech. He apparently ignores that such control makes the state an arbiter of good-speak and bad-speak, no less than grants make it an arbiter of art. Moreover, Fiss fails to support his premise that pornography or hate speech actually somehow “silences” people.
Nils R. Connor
Crisis in the Academy: Rethinking Higher Education in America
by Christopher J. Lucas
(St. Martin’s Press, 1996. 288 pages) $29.95
EDUCATIONAL HISTORIAN, CHRISTOPHER LUCAS chalks the current crisis in the universities up to finances. However, after he’s surveyed the origin and evolution of post-secondary education in the United States, his more important though unstated message is that there has always been a crisis in the academy. The perpetual crisis has revolved around the same set of issues. Should these institutions provide general education at the undergraduate level? Specialized professional training? Scholarly research at the graduate level? Should these be separated or combined in one institution? Who should be admitted? What curriculum should be taught and how should faculty be recruited and retained?
Among other reforms, Lucas proposes redefining the mandate of each set of institutions that make up post-secondary education. Some will need to become more vocationally oriented while others should reflect the philosophy of a liberal education. Lucas feels that universities offering undergraduate education should resist the pressure to measure results purely in terms of job placements, and they should question rigid course requirements of majoring in a particular discipline. In no sense would he allow students to select their courses and let the market decide the value of their choice. More worrying, however, he downplays to two pages the probable effect of information technology and the expansion of distance learning. Without considering these forces, future crises will be assured.
Dossier: The Secret History of Armand Hammer
by Edward Jay Epstein
(Random House, 1996. 418 pages) $39.95
EDWARD JAY EPSTEIN’S TALE of the close relationship between Armand Hammer and the Soviet state will cause a shudder in many capitalists who find parallels to their own heroes uncomfortably close for comfort.
For Hammer’s life provides an extreme lesson in how to use state levers for private gain. The first westerner to obtain Soviet monopolies, this concessionaire extraordinary had his hand in asbestos mines and oil fields; he received a cut from every immigrant in America who wanted to send money to relatives in Russia, and for every Ford vehicle sold in the Soviet Union.
Epstein paints Hammer’s success as diametrically different from the accepted mode of business taught in the West. Not due to the free market, it “was based on the Leninist concept that economic rewards proceed from the state. Rather than exposing businessmen to withering only-the-fittest-shall-survive competition, the state protects its concessionaires. The chief skill, therefore, is getting a concession from the government — and holding on to it.”
Yet many, if not most, successful western capitalists more resemble Hammer in their business philosophy than Adam Smith and his ideal world of free markets. The chief skill demonstrated by Canadian industrialists, from Sir Henry Pellatt at the turn of the century to Ted Rogers today, was precisely getting — and holding onto — the state concessions and other favors that led to their fabulous wealth.