Long Before Berlin

Posted in Issues

Long before the Berlin Wall came down, there was May Day in New York.  In the flow of history these last forty years or so there have been many other signposts. But it is May 1, 1975, that stands out in memory as a moment in which it became clear that things were changing in a certain way.

That was when the Securities and Exchange Commission ended the New York Stock Exchange’s 180-year-old monopoly on corporate control, eliminating its authority to fix commissions in securities transactions. Although I barely understood it at the time, this accelerated the demise of the old WASP establishment that had presided over the country since its beginnings – The Last Days of the Club, as journalist Chris Welles put it in a perspicacious book – and opened the door to an era of restructuring, accomplished in the West mainly through mechanisms of finance, that would quickly spread all around the globe. Baseball’s Reserve Clause, which bound players to the clubs that owned their contracts “in the interests of the game,” fell in arbitration the same year.

After that, nothing surprised me, at least not for long – not Jimmy Carter’s election in 1976, or Ronald Reagan’s victory in 1980; not the capital gains tax cut in 1978 (and the subsequent explosion of venture capital investment in new enterprises) or the Bayh-Dole Act of 1980 (expanding private patent rights to government-sponsored research) or the income tax cuts of 1981; not the rise of Michael Milken or the breakup of AT&T; not the beginning of interstate banking or the collapse of the oil cartel; not Deng Xiaoping or Mikhail Gorbachev; not the fall of the Berlin Wall or the breakup of the Soviet Union; not even the transformative effect of the microprocessor, the software industry, the Internet and the browser.

There was a tide running, it was clear, one that favored outsiders over insiders, newcomers over incumbents, individuals over the group. The major exception to that rule in those years, it seems to me, when “the interests of the game” came first, was Paul Volcker’ appointment to the Federal Reserve Board in 1979 and subsequent career (then it was the Hunt brothers, busy attempting to corner the world market in silver, who were the first rugged individualists to be clobbered), though the Social Security compromise of 1982 and the tax reform act of 1986 should be mentioned as well.

These days I have something of the same feeling about the health care bill going forward in the US Congress, except that now, I suspect, the tide has finally turned and things have begun to flow the other way

Not that the House bill is by any means a decisive triumph. Instead, it signifies the opening of another door, this one leading to an era in which choices will routinely emphasize the social order instead of purely individual choice, not one big change, but lots of little ones

Like what? To get some sense of what such a shift in emphasis might mean going forward, think back on the changes in health care in the years when things went the other way.

Arnold Relman has described a process he calls the commercialization of the health system. A physician, Harvard Medical School professor, and for fifteen years editor of The New England Journal of Medicine, Relman long has been among the most nation’s most relentless critics of the growing influence of market capitalism on the practice of medicine. It had begun during World War II, when investor-owned health insurance companies were established in order to take advantage of employment-based insurance, he writes in A Second Opinion: Rescuing America’s Health Care System, his 2007 book, but rapid changes commenced only in the 1970s.

A key event, Relman explains, was the 1975 Supreme Court decision in Goldfarb v. Virginia State Bar which found that lawyers, and thus other professionals, including physicians, were engaged in interstate commerce, and therefore could be compelled to compete under the antitrust laws, from which they, like the owners of baseball teams and members of the New York Stock Exchange, previously had been exempt. (He reprised the argument here last summer.)

Before that decision, the American Medical Association had cultivated a professional ethos among its members, requiring them to limit their earnings to their patient practices, to refrain from advertising, and from going into business with pharmaceutical and device manufacturers. After suffering a series of courtroom defeats at the hands of physicians chafing at its control of fees and practices, the AMA acknowledged that medicine had become a business as well as a profession, and changed its ethical guidelines accordingly. The courts didn’t initiate the commercialization of medicine, Relman writes, but they accelerated it and gave it legal justification. Many other sources of authority, from Congress to venture capital firms, from investment bankers and institutional investors, sanctioned it and gave it force.

The result is a medical profession that has become far more entrepreneurial and profit-oriented than any other in the world. Relman says that investors own around 20 percent of nonpublic general hospitals, almost all specialty hospitals, and most freestanding facilities for walk-in patients, such as clinics, imaging and surgery centers. Non-profit hospitals are forced to compete by advertising their services to the public.

A certain amount of decentralization and competition is desirable in the health care sphere, obviously. But the risk of turning a service that by its very nature is not well delivered by the market into an industrial lobbying complex is substantial. Diminishing that risk is what reform of health care is about.

Is it possible to structure the system so as to bring more people into medicine because they want to practice a healing profession, secure in the knowledge that they will earn relatively high salaries and an appropriate measure of their communities’ respect? Probably. Cornell University economist and New York Times columnist Robert Frank today offers a good gloss on some of the details. The best overall guide to what to eventually expect is still Tom Daschle’s book Critical: What We can Do about the Health Care Crisis, in which he and co-authors Jeanne Lambrew and Scott Greenberger advocate the creation of a Federal Health Board designed to oversee medicine in much the same way that the Federal Reserve Board oversees the banking industry, through the agency of a dozen decentralized regional authorities. Daschle, who served for a time as Senate majority leader, was to have been Secretary of Health and Human Services in the Obama administration until his failure to report as income and pay taxes on a chauffeured car forced his nomination to be withdrawn. He retains much influence behind the scenes.

There will be plenty of opposition – threats of doctor shortages, of red tape, of health care rationing, of lagging national competitiveness. (Here’s an intelligent summary of the particulars that chafe so far. ) The Republican Party will continue to resist, perhaps to shake itself apart, until it can re-emerge once again as a broadly acceptable steward of institutions it shows no interest in helping build. The House bill as it stands is a step in the right direction, evidence of a flow that can be expected to continue for many years – towards a modest privileging of the rights of the community over a fortunate minority of its members. Its passage will be as significant in its way as was that May Day deregulation in New York long ago