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Testimony before the House State Government Committee

Editor's note: As many of you know, Dr. Raymond Gangarosa, our Research Fellow in Public Health, was instrumental in forming the legal strategy for the lawsuits against the tobacco industry. Currently, he is writing on the theoretical foundations for new approaches to public health. Dr. Gangarosa gives us an important glimpse into the shape of his current work in the following excepts of his testimony to the Pennsylvania House of Representatives.

Testimony before the House State Government Committee
October 11, 2001
Harrisburg, PA

Noxonomy and noxocracy
A noxonomy is an economy based on harm, and a noxocracy is a government that fosters harm. The terms are derived from the Latin “nocere”, to harm, which is also the root for the word “noxious”. I have coined these terms to point out a longstanding, but previously-unrecognized, phenomenon that has been silently undermining our nation’s communities, infrastructures, and economic incentives.

A biological analogy
The simplest way to understand noxonomy is to consider its biological analogy: cancer. Cancer is a malignant growth that arises from the body’s own tissues, but has mutated into a destructive form. Three major features of cancer are (1) it escapes accountability by masquerading as normal tissue, (2) it competes for resources so voraciously that it causes the body to waste away, and (3) even a very small malignant tumor can cause life-threatening illness:

(1) evasion of accountability. A malignant tumor acts like an internal parasite, eating away at the body from within. The body constantly checks for cells that are functioning abnormally, but sometimes it fails to detect and remove cancer. In each of our bodies, a few cells mutate into microscopic tumors every day, but fortunately, the body’s immune system recognizes and kills almost all of them before they can grow. The cancer cells that survive long enough to cause damage trick the immune system by passing as normal tissues.

(2) voracious competition. A cancerous tumor takes on counterproductive functions, invades normal structures, and interferes with vital systems that sustain life. A malignancy is so voracious at siphoning resources that normal tissues cannot compete with it. Thus cancer causes cachexia, the clinical term for wasting away of the body.

(3) parasitic effect. It doesn’t take a large cancer to usurp the body’s normal operation. A cancer that comprises just a half-percent of the body’s weight is considered extremely large. A cancer of that size can reduce a well-developed person to a skeletal figure, so only the tumor thrives — and only temporarily — before it kills its host.

Economics—and government—by harm
Shifting our attention back to society, most industries impose small social costs of some kind, but then they pay their way — through taxes, regulation, pollution control, and, if all else fails, product liability. Normal industries are fairly sensitive to whatever harm they might cause in society. When one person died of tainted Tylenol, Johnson & Johnson pulled the whole product off the shelves nationwide and invented tamper-proof packaging. That incident may not have been a defective product at all, but that company set the standard for good corporate citizenship in the face of revealed harm.

In sharp contrast, noxonomy is the economic sector based on an epidemic of harm — the cancer hidden in our society. A whole class of industries act like societal cancers — most prominently alcohol, tobacco, firearms, gambling. These industries cause exceptional social harm — including death, disability, addiction, and secondhand injury on the scale of a “commercial holocaust”. They have mutated into a proliferation of destructive forms that exhibit all the features of cancer:

(1) evasion of accountability. These industries have escaped society’s usual controls by shifting blame for harmful commerce to their consumers—and then shifting associated downstream costs onto society. Thus “blame-shift industries” find loopholes that allow them to engage in counterproductive economic activity, which destroys lives and communities instead of building an economic base.

Incidentally, here’s where noxocracy comes in—a government that fosters harm. For reasons explained below, these industries have lots of money to pour into political campaigns. Campaign contributions are the way these industries pay off legislatures to look the other way. We, the American public, need to ask our representatives if they are sustaining this cancer in our economy—or if, confronted with this problem, our government will finally begin performing the functions of an effective immune system.

(2) voracious competition. Blame-shift industries have exorbitant profit margins, often more than twice those of the economy as a whole. Why? Because they don’t have to pay social costs, and everybody else does! They get a huge implicit subsidy, just by causing harm to society! They owe their fabulous prosperity to the enormous harm they have caused, and then to the unjust enrichment they have obtained by getting someone else to pay the bills. Indeed, if they had to pay the social costs they incur, they would rapidly go broke. Furthermore, harmful industries impose burdens directly on the vital infrastructures that sustain society, e.g., the health care system. Social infrastructures are immediately downstream from harmful markets, typically serving vulnerable populations who are heavily addicted and cannot pay for the services they receive. In other words, our nation’s vital safety nets are unfairly forced to give implicit subsidies to harmful industries, by providing treatment services and absorbing uncompensated costs that are required to manage preventable commercial epidemics.

So why has America cut back on services to vulnerable populations? Why is our health care system in dire straights? Why have the numbers of uninsured and homeless Americans skyrocketed over the years? Why is infrastructure reserve capacity grossly inadequate? Because social and health care infrastructures are at ground zero in this economic epidemic. As vital as they are, we can’t afford to sustain them while they are draining resources at such a rapid rate. Make no mistake, we’d better solve this problem soon — we will need financially-healthy safety nets, or the baby boomers’ retirement will be a living hell.

(3) parasitic effect. Blame-shift industries comprise about 2% of the gross domestic product—the equivalent of an absolutely enormous cancer! So why has the American manufacturing sector shrunken over the past 30 years? Why have we gone from a high-paying manufacturing economy to a low-paying service economy? Why are industries driven increasingly by quarter-to-quarter profits? Why are industries increasingly short-sighted and reluctant to make long-term investments? Why is Social Security in jeopardy and our future economic base insecure? Because garden-variety industries, America’s good corporate citizens, cannot measure their profitability against what amounts to a heavily-subsidized parasite. There is a perverse economic incentive, buoyed by implicit subsidies, that favors industries that cause harm over those that have a constructive impact on society. A noxonomy needs low-cost computers, service industries, marketing, and distribution networks, but it has shed the really good manufacturing jobs overseas, where labor is cheaper. Thus the economy is dominated by industries that undermine its foundation, like a cancer that is causing the rest of the body to waste away.

With our society’s scientific knowledge, we should be in a technological renaissance. Instead, investors can earn more in tobacco, alcohol, and gambling than they can in solar panels, fuel cells, and optical computers—some of the investments that could fundamentally improve our lives, increase our productivity, and transform our economic base (just in time to sustain Social Security during the baby boomers’ retirement). Economists have not recognized these mechanisms, because effective, but expensive, social infrastructures have only been around for 40 years—not long enough for them to diagnose the social equivalent of cancer. But it’s here, and it’s eating away at our society, slowly but surely.

The remedy
To treat this social cancer, we must hold harmful industries to complete accountability for the costs they impose on society. Otherwise the implicit subsidies remain. Indeed, to reverse the wasting effect of this societal cancer, we must make blame-shift industries accountable for the unjust enrichment they have enjoyed over the decades of implicit subsidies. Our nation’s infrastructures, the people who depend on them, and constructive industries need a new mantra: “This is not our problem!” It’s up to harmful industries to solve the problems they have created.

However, blame-shift industries don’t make enough money to repay society for the ongoing damage they do, much less for the backlog of disability, addiction, and community dysfunction they have caused. The problem with the states’ tobacco settlement was that we expected the cigarette companies to pay a monetary settlement, but didn’t want to bankrupt them, so we reduced the damages to what they could pay out of post-tax profits. As various constituencies haggle over the tobacco settlement funds, we now see that it wasn’t such a windfall after all. In fact, tobacco still imposes far greater social costs than it pays—and so the implicit subsidies continue!

We have let this problem persist so long that social costs and harm have escalated beyond the capacity of current social controls even to manage them, much less to correct the cumulative imbalances. Everybody thought these industries were part of the economic landscape, just doing their jobs marketing legal products, and didn’t recognize they have been a cancer for decades. It’s not so important that we assign blame, as that we solve the underlying problems. We must craft new solutions that are self-sustaining and (if the industries cooperate) essentially nonpunitive.

I propose a practical mechanism whereby harmful industries could repay the social costs they have imposed by producing equivalent social benefits. They would essentially be required to convert part of their operation to nonprofit status—forming the world’s largest charities—until they had repaid their debt. They would receive credit as they restored addicted consumers and dysfunctional communities to normal, productive life. They might also invest in long-term adaptive technologies and energy conservation programs that have been suppressed by the short-sightedness they have induced in our economy. Such restitution programs would improve tax bases, and the enhanced revenues could sustain their operation. This remedy replaces longstanding implicit subsidies with a natural accountability mechanism. These industries would finally have a vested financial interest in solving the problems they have created, because their operating revenues and debt payback are linked to the productivity of people and communities they once harmed.

In fact, this intervention also suggests a new mechanism for public investment. “Public entrepreneurs” not constrained by legal obligations could also invest in improving a tax base and receive a modest return on investment if they get good results. I call this mechanism tax base feedback. It could be a direct way to reinvest in the engines that should drive our economy—human potential and adaptive, innovative technologies.

Constructive industries have nothing to fear from these policies. Faced with the threat of product liability and unable to shift blame to consumers, they have never been able to impose such unprecedented commercial epidemics. This mechanism serves only a backup to conventional social controls, to prevent blame-shift industries from causing huge epidemics and associated social costs.

In fact, constructive industries should soon benefit from greater investment, since they will no longer have to compete for capital against the economic equivalent of a malignant tumor. I believe that’s why technology stocks did so well after the tobacco settlement. What had been a sure-fire, recession-proof, dividend-paying investment in tobacco stocks suddenly became a risky bet, so investors fled to the promise of high technology. When the Bush administration took over and indicated it would slack off on litigation against the tobacco industry, investment money reversed directions—and precipitated a mild downturn.

My proposal is a market-oriented solution, that just restores a level playing field to our society’s vital infrastructures and the 98% of our economy that has not unjustly enriched itself by imposing harm on society. The current generation of blame-shift industries will have to change the way they do business, reducing social costs essentially to zero. How they manage that is their business, but I suspect they will be much more careful about what products they market and to whom. As long as they are accountable for all the social costs, they will have every incentive to curtail the harm they impose—at long last!

The intent of this intervention is to solve the underlying problems, and not to penalize once-harmful industries or their investors. If those industries can make the transition to constructive enterprises and good corporate citizenship, more power to them! I even have an investment tip for them—diversify into public investment. They’ll have a good start, running the programs that reclaim our communities, infrastructures, and economic incentives.

Thank you for your attention. And please address this problem.

Ray Gangarosa, MD, MPH, MSEE
Decatur, GA
October 9, 2001

[ Posted by Ray Gangarosa at November 1, 2001 05:31 PM | More General Center for Ethics News articles ]

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