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CEI's Fred Smith is Marketing the Market

CEI's Fred Smith is Marketing the Market

10 Mins
March 18, 2000

Before founding the Competitive Enterprise Institute, Fred Smith served as the director of government relations for the Council for a Competitive Economy, as senior economist for the Association of American Railroads, and for five years as a senior policy analyst at the Environmental Protection Agency. Smith has a degree in mathematics and political science from Tulane University. For more about CEI, visit its website at http://www.cei.org.

Navigator: CEI was founded in 1984. Who were the people involved in starting it up and what were their backgrounds?

Smith: CEI was established in March 1984. My background had been at the Council for a Competitive Economy, a group that was created as a businessman's libertarian organization some five years earlier. I worked as Director of Government Affairs for CCE and coalition/outreach person until its funding was pulled. Many of the groups with which I had formed coalitions on various issues as CCE's Director of Government Affairs urged me to launch a new organization with a more activist focus. My belief then, and now, was that a creative linkage of analysis and advocacy offered greater hope for advancing economic liberty than did either alone.

Cesar Conda, a CCE staffer, helped me to create CEI. For the first year, he was CEI's only paid employee (I took a one-year moratorium on salary to assist the changeover). Cesar worked for CEI until he moved on to Capitol Hill.

I also received substantial encouragement and support from leaders at other policy organizations sympathetic to the free-market cause, including Paul Weyrich (Coalitions for America), Bob Poole (Reason), Phil Truluck (Heritage), Chris DeMuth and Marv Kosters (AEI), and others. My wife, Frances Smith, then at the American Financial Services Association, and now head of Consumer Alert, also played a very key supportive role. CEI now has a vigorous staff approaching 40 people.

Navigator: Why was it thought necessary to set up a second organization alongside the Cato Institute?

Smith: Fortunately, CEI didn't have to get clearance from anyone to establish itself. Like most entrepreneurs, I saw a need and moved to meet it. I believed there was a need to shift some resources to the marketing front, to seek to translate our ideals into reality. And we serve a different role than Cato does. CEI is a group that seeks to transfer libertarian ideas and ideals to the political arena—to learn the skills needed to translate theories into practice. That concept is different than that behind a traditional "think tank." In essence, CEI is an organization with a libertarian/classical liberal ideology, but one more akin to the activist left-liberal organizations—such as the Naderite and environmental groups—in style and activities.

I thought then, and now, that ideas have consequences, but they will have consequences more quickly and more surely if they are aggressively advanced in the policy/political world. As I've often remarked, it takes more than writing a great sex manual to have children! CEI's role is to get those books off the shelf and get things going.

In effect, I think that collectivism was a bad idea that had been well marketed. We can learn much from their tactics and strategy to pursue our superior (intellectually and ethically) ideals.

Navigator: Could you please compare the prevailing attitudes toward free enterprise and limited government, then and now. What hopes did the pro-capitalist entertain then that perhaps they don't now?

Smith: We had moved beyond the Mont Pelerin/Hayekian view that our role was simply to keep alive the ideas and ideals of liberty (the "monastic" approach) in the hope that eventually the internal contradictions of the left would create opportunities for advances in the future. But we had not yet formulated an activist policy. And we believed, rather naively, in retrospect, that education alone would suffice to bring America and the West to their senses. We had not internalized Schumpeter's and Mises's insight that intellectuals have a self-interest in defending the statist status quo. Also, there was a prevailing belief that political action (specifically, the election of libertarian or libertarian-influenced politicians) would advance our message further.

Now I think we are aware that we must fight on more than the intellectual front. We know we must create a "culture" respectful of the institutions of liberty so that the non-libertarians come to appreciate the value of the institutions of liberty—private property, a rule of law, the separation of religion (values) and state, the primacy of voluntary institutions in the non-market as well as market world. We're not there yet. Until we've advanced much further into the Cultural War, we should expect to lose any libertarian elected to office (Ron Paul excepted).

Navigator: What errors seemed entrenched in 1984 that perhaps do not seem so entrenched now?

Smith: The primary change has been a loss of faith in government. Human nature and governmental institutions were recognized as flawed—but the prevailing wisdom was that they could be "reformed" to work. Good Government (the "goo goo" philosophy) was still dominant. Today, that faith has been waning; fewer people believe that the government is an appropriate mechanism for addressing most of the problems of society (poverty, the disadvantaged, economic development). There remain major forces which still push for such initiatives (government-funded schools, mass transit; welfare programs, etc.) but they no longer retain their unblemished moral fervor.

This happened partly because of experience. The failures of planned economies and planned sectors and the collapse of Communism demonstrated the inherent problems with such political structures. Likewise, intellectual work such as the efficiency critiques of political approaches to these issues, and public choice work that undermined the moral stature of interventionist policies, helped us to argue effectively against statism.

Most importantly, there was a rediscovery of the strength of non-profit, voluntary institutions by Charles Murray and Marvin Olasky, among others. The progressive successes of the late 19th and 20th centuries did great damage to the market side of the voluntary society. However, they may well have done even greater damage to the voluntary sector. Neighborhoods, voluntary problem-solving groups, churches and a host of other groups were seen as unimportant and trivial institutions, unable to make any significant contribution to the "important" problems of society. Today, these entities are again gaining respect and attention and we're beginning to restore and expand them. Jane Jacobs, author of The Death and Life of Great American Cities, is a good example of someone who, though certainly not libertarian, realized the potential of voluntary action and spontaneous order. Such individuals have done much to advance libertarian prospects in our day.

Perhaps the major bastion of progressive thought remains in those areas which emerged during the progressive era—specifically conservation and environmental protection. The evolutionary process was largely short-circuited by that socialist ideology, leaving us greatly bereft of alternatives to "Daddy Knows Best" political approaches. From Teddy Roosevelt onward, many so-called "conservatives" joined liberals in advancing political solutions to what had previously been the sphere of voluntary action. America became a nation with two instruments—the market or politics. The American "third way"—that of voluntary, non-profit arrangements and institutions—was ignored and disparaged. CEI is spending much time rebuilding understanding and respect for that alternative. One need not be a "Red" to be a "Green," we argue, for example, and others are finally beginning to agree with us.

Navigator: CEI's stated mission is "advancing the principles of free enterprise and limited government." Where over the last ten years, would you say you have made the biggest impact?

Smith: CEI's largest impact has been in taking on the Regulatory State. We have illustrated through intellectual and emotive work the failures of regulatory policy to advance the human condition.

Our Death by Regulation work has dramatized the fact that regulations have unintended consequences and that those consequences can be deadly. An example of our impact in the political sphere is the federal government's new-car fuel economy standards, popularly known as CAFE (Corporate Average Fuel Economy). Making CAFE standards more stringent is currently one of the highest priorities in the environmentalists' global warming agenda. CEI pioneered what has become, politically, the major argument against higher CAFE standards. That argument is that CAFE kills people by causing cars to be downsized. Smaller cars mean less crash-worthy cars, meaning more fatalities when cars crash. CEI helped initiate the major research on this issue. We took the responsible agency to court (three times) when it failed to honestly address the safety question, and we won one stunning judicial victory. We did this at the same time that the auto industry and the Reagan Administration were belittling the safety issue.

This ties into the more general theme of "Death by Regulation," a topic which Sam Kazman, our general counsel, discussed at your summer seminar in 1999. Other issues which connect to this theme are how FDA delays the availability of new medical drugs and devices, and how the FAA's proposal to require children to ride in safety seats on airlines would increase overall deaths by shifting passengers to more dangerous highway travel.

From a philosophical perspective, we know that when government restricts consumer choices, bad things happen. But to be able to show that those bad things literally include people dying is, I think, a great step forward in making a persuasive argument for freedom.

Our environmental work, specifically our Center for Environmental Education Research (CEER) and our Center for Private Conservation (CPC), have made many aware of the value of a decentralized and even voluntary approaches to environmental issues. Our use of provocative emotive messages has demonstrated that libertarian ideas and ideals can reach beyond the intellectual community (the community that would prefer not to hear us) to people.

In the environmental area, CEI has been very effective at highlighting the insanities of current environmental policies. Our work not only demonstrated that these policies are inefficient, but also that they are unfair and fail to advance environmental protection. In a sense, we've sought to undermine support for environmental regulations by appealing to values—such as fairness and environmentalism—typically dominated by statist solutions. Thus we've argued that the Endangered Species Act is both bad for people and bad for endangered species. Indeed, by imposing draconian regulations on individuals who own species habitat, the law encourages habitat destruction.

CEI was the first to document the role the ESA played in preventing landowners in Riverside, California, from protecting their homes by clearing firebreaks. A small rodent listed as an endangered species—the Stephen's kangaroo rat—lived in the brush, so landowners were told not to clear firebreaks. In the resulting fires, 29 homes were lost. I should note that the kangaroo rat's habitat didn't fare much better. Such regulation is both immoral and anti-environmental.

CEI is also building on its environmental work with analyses of the role that market institutions, specifically property rights, contract, and rule of law, can play in enabling private conservation efforts. This is the role of our Center for Private Conservation. In addition, the Center for Environmental Education Research (CEER) critiques the "greening" of America's children through the education system and seeks to arm parents and teachers with sound information on environmental issues. Facts Not Fear, a book co-authored by CEER director Michael Sanera, has been wildly successful, as evidenced by all the left's attacks on its positive message. CEER works with state think tanks and state legislators to reform environmental education in the U.S. It is also working on unbiased books on the environment for middle school students. When published, these books will be in 25 percent of school libraries across the nation.

CEI has also demonstrated that pragmatic tactics can attract support from business and other non-ideological groups, and that groups who do not endorse libertarian principles can still endorse libertarian policies. In Washington, D.C., you dance with other folks; you don't get married. Recognizing this political reality has enabled CEI to create cross-ideological coalitions on specific issues to stop statist initiatives that threaten our liberties.

Navigator: Looking across the board, from attitude to policy, what areas would you say have been the hardest to change during the last ten years?

Smith: There are many. One is the difficulty of persuading conservatives that the individuals placed in governmental roles (executive, judicial, and legislative) are more important than the creation of the policy climate around those people who allow (encourage) them to remain true to their principles. The collapse of the conservative coalition has been a major setback. These people have been like iron filings dropped in a liberal magnetic field—they've eventually gravitated toward state governments. Indeed, some political "reforms" such as term limits have removed some of the best voices for our side.

Issue areas that have proved most difficult to modify are the safety, health, and environment issue areas mentioned above. They are the most complex since we do not have a "model" of how a free society would work. Other areas, such as the defense of property rights (and the associated liability laws—based on trespass and harm), that would have evolved to resolve these complex problems are only now receiving intellectual attention. Most think tanks have yet to grant these areas the intellectual priority they merit.

Navigator: You have brought free enterprise principles to the world of the Internet business, and to the pharmaceutical business. Are you involved in bringing free enterprise principles to the business of bioengineering?

Smith: Yes. This is an issue CEI has worked on from time to time for more than a dozen years. I first got involved in this during the late 1980s when the first wide-scale field tests were being conducted on genetically engineered commercial crops. CEI worked on it again during the early 90s when the FDA was evaluating the first genetically engineered products for marketing. Over the past year and a half, we've been drawn back again and again.

At each step of this process, it was crucial to have a free-market voice in the political arena arguing for private regulation over the political. Many big players in the industry (as in most industries) actually favor FDA, USDA, and EPA oversight, because they think that the public will trust their products more if they're heavily regulated and seem to have the government's imprimatur. And if these regulatory burdens happen to suppress competition, then all the better. The main battle here is between the environmental establishment, which thinks there isn't nearly enough political regulation, and the biotech industry, which thinks there's just about enough regulation. So you can see how important it is for us to be in the battle over biotech foods.

Because there are some legitimate concerns about externalities—human health and the environment—it's easy for people to accept the need for regulation. The real question for us is not whether there should be regulation, but who should be doing it. There are countless reasons for innovators to make sure that they put products on the market that are safe—legal liability, a need to satisfy customers, etc. And there are countless other actors in the market that act to slow the pace of innovation—venture capitalists seeking the best return for their investments, the action of competitors in the marketplace, etc. It's therefore not clear that you need to add onto this a layer of political regulation from the FDA, EPA, or USDA.

Our work in this field has also been aimed at improving basic institutional frameworks that will allow market actors to optimize their choice between taking on risky new innovations on the one hand, and accepting the risks of stagnation on the other hand. Just as with our other work, these institutions include things like secure property rights, right to contract, legal liability, etc. And, to the extent that political regulation is a fact of life, we also look at institutional reforms that will encourage political regulators to consider both sides of the risk/risk equation as well. Of course, none of these things can be expected to work flawlessly, but the proper institutional frameworks can work to enhance freedom of action and consumer choice, and improve overall safety by letting individuals choose the level of risk that is most appropriate for them.

Navigator: Can you point to measurable effects that these products, events, and activities have had?

Smith: Perhaps the hardest thing for a policy organization to do is to measure its effect. When you're trying to change attitudes, how do you measure your specific influence? Much of our work is inherently non-measurable—the interventionist rule that was not proposed, the program that was not extended. Nevertheless, there are some cases that we can point to where CEI's influence was directly felt. Our lawsuit against the federal Department of Transportation over fuel economy standards, for instance, sent the CAFE rules back to the drawing boards, forcing the regulators to evaluate those rules' negative effects on safety. Since then, CEI's continuing research and advocacy efforts have kept these standards from becoming more stringent. (Although even here, the non-tangible effect of our work may even have been greater—CEI in large part can take credit for an increasingly public understanding that forced fuel economy standards cost lives.)

Our media presence is also a measure of our success. CEI has penetrated media venues that are typically hostile to free-market messages, such as National Public Radio and the New York Times.

In the environmental area, we've also had some tangible success. While still a threat to consumers, the Kyoto climate change treaty has not been ratified, in part due to the efforts of CEI and its Cooler Heads Coalition. Other successes come from work in the trenches of policy. A concentrated effort in 1998 helped deter Governor Bush in Texas from pursuing an anti-property rights endangered species program. CEI's efforts last year helped to create changes in federal law to grant taxpayers greater access to the data from federally funded studies. The end result is that regulators can less easily use bad science to extend their reach.

Navigator: Has CEI changed its strategy or tactics in any significant way over the last 15 years?

Smith: The main strategic move we've made over the last several years is to focus more on effective communication. As I explained earlier, we can learn a lot from our adversaries in this area. Our work on public communication began with attempts to "teach" people about the risk versus trade-off. But people generally aren't motivated to "learn" about political issues. They are rationally interested in more mundane issues in their lives over which they have more real control. We evolved an understanding that you don't need to teach people all the nuances and subtleties of an issue, or convince them to buy into your worldview, to get them to accept your public policies.

In matters of public policy, our goal should not be to "educate" but to "communicate"—that is, to understand that people think about policy issues differently from how economists and scientists do, and to speak to them in a way that reaches their personal values.

CEI's advocacy work increasingly has been targeted at convincing the public that free-market policies can best advance their more "egalitarian" values and their concern for "fairness." Libertarians and Objectivists have generally shunned this type of approach—we think that people should value freedom more highly, and think it's beneath us to justify the ideas of freedom on egalitarian grounds. but if we ever hope to win, we have to present our ideas to the public in a way that will actually motivate them to support our policies.

We've also conducted a lot of outreach to the corporate community, trying to get them focused on "legitimizing" their products and industries. That is, talking about their products and in a way that makes their value to society more clear, not just to customers and employees but to the entire public. Our main goal is to communicate with the public about freedom and capitalism in a way that will motivate them to support those ideas rather than supporting political encroachment into their lives.

Navigator: The adage that "people are policy" is met by the adage that "where you sit is where you stand." Do you think it is possible to elect and appoint people with better ideas? Or are the institutional pressures on a politician or bureaucrat so great that his "ideas" are essentially determined by his position?

Smith: People matter—a thoughtful individual with a strategic sense can better mobilize and modify his institution to improve his prospects for staying "pure." But the primary battle should not be to seek out libertarian heroes and put them into office. It should be rather to fight for institutional reforms that improve the prospects for average people to perform in extraordinary ways. This is the Hayekian view of the market. It is a system that harnesses the abilities and talents of average people to create incredible results. We've not focused our energies on such institutional reforms, and our lack of greater success reflects that failure.

Navigator: Surveying the many institutions in today's pro-capitalist world, what do you see as your niche and comparative advantage?

Smith: CEI's major niche is its focus on working outside the intellectual and libertarian communities (narrowly defined) to seek allies in the fight to create and/or strengthen the institutions of liberty. Our comparative advantage is that we speak more to non-libertarian groups than do most of our fellow groups, yet we do so while seeking not to compromise our principles. America was, we believe, less a libertarian nation than one of the institutions: the Constitution, separation of powers, a federal system, and separation of Church (values, more generally) and State. It was a culture skeptical of the efficacy of coercive power as a means of doing good. All these institutional strengths have been greatly weakened during our history. (See the work of Robert Higgs, for example, and Robert Nelson's "Reaching for Heaven on Earth.") Our task and focus is on restoring those institutional safeguards.


Navigator: Could you please provide an overview of the Institute?

Smith: Our primary policy work is divided into six broad departments at CEI, each staffed by a team of two to five policy experts:

Lands and Natural Resources—which covers environmental issues such as suburban growth, federal lands, water policy, and endangered species—is headed by David Riggs;

Risk and Environmental Policy, headed by Angela Logomasini, covers environmental issues related to health, such as clean air and clean water policy;

Global Warming and International Policy, headed by Myron Ebell, birddogs the proposed Kyoto climate-change treaty and efforts to impose environmental regulations through international trade negotiations;

The "Death by Regulation" program—which works on non-environmental threats to health and safety resulting from government regulations, such as FDA rules, fuel economy rules, and biotechnology restrictions—is headed by Sam Kazman;

Competition and Regulation works on antitrust policy and types of regulation of competition. This department also examines regulation of high-technology and regulatory process reform issues; and

Economic Policy covers other economic regulation issues, ranging from health care to financial regulation.

This work is supplemented by two stand-alone centers: the Center for Environmental Education Research (CEER) in Tucson and the Center for Private Conservation (CPC), based in San Francisco and headed by Michael DeAlessi. The CPC produces reports and case studies illustrating how private, voluntary efforts can conserve the environment as well as, or better than, government action.

Navigator: What do the various parts of the Institute do, in terms of their product, events, and activities?

Smith: CEI's outreach and advocacy activities are focused on putting the right policy answers into real-world political debate. One way that we do this is through CEI-sponsored events that policymakers, the media, and policy experts attend. Another is through testimony, where CEI analysts take their case directly to policymakers, working with legislators, regulators, and their staffs to ensure that market-based ideas are understood.

CEI also furthers the policy debate by organizing and leading working groups and coalitions on various policy issues. For instance, CEI leads the Cooler Heads Coalition, which consists of public interest groups, research organizations, business leaders, and policymakers dedicated to applying sound science to the global warming debate. Cooler Heads is a working alliance of the National Consumer's Coalition, an umbrella group organized by Consumer Alert. CEI created a cross-ideological coalition to oppose congressional legislation to allow for the erection of barriers to interstate commerce in waste disposal services, key senators who typically disagree with CEI decided to block the bill. If CEI could agree with radical groups like Greenpeace that the bill was bad, the senators realized, then it could not be good on any front.

We use litigation as another means of advancing free-market policies and individual freedom. Sometimes, the goal is simply to make agencies follow the law, weigh the consequences of government regulation, or point out inconsistencies in government rules.

A recent example was when CEI, along with Citizens for the Integrity of Science, filed a deceptive advertising complaint against Ben & Jerry's Ice Cream with the Federal Trade Commission. Now, it's highly unusual for CEI to turn to any federal agency for action. But, in our view, protecting the public against force or fraud are two legitimate government functions, and here we saw a clear case of fraud.

Ben & Jerry's had launched a new ad campaign touting the allegedly dioxin-free nature of its new ice cream packaging technology. It claimed that the "only safe level of dioxin exposure is no exposure at all." What it failed to mention, however, was that the contents of its new packaging—the ice cream itself—naturally contain significant quantities of dioxin. Our point wasn't that Ben & Jerry's ice cream is unsafe; it isn't, and we served up free samples at our press conference. But we wanted to illustrate the hypocritical absurdity of Ben & Jerry's "zero tolerance" campaign. The filing garnered considerable attention, giving the ice cream company and the pro-regulation crowds a black eye.

Our publications aim to provide essential information to policymakers, journalists, and academics. Our media outreach focuses both on the Washington audience and on regional work, which allows people around the country to learn about CEI and free-market concepts. We publish a monthly newsletter, UpDate. We publish OnPoints, one- to two-page policy briefs that examine specific issues in depth, about once weekly. We also produce C:/ Spin, an email commentary on the regulation of high technology. Typically C:/ Spins are 3–4 paragraphs in length but often are produced and distributed within hours of a breaking news event.

CEI also publishes books, booklets, and monographs. A recent project was Earth Report 2000: Revisiting the True State of the Planet, published in 1999 by McGraw-Hill, a collection of essays written by preeminent experts in the environmental field. Many environmental groups, most notably the Worldwatch Institute, practically specialize in regularly issuing doomsday scenarios for the earth. Earth Report 2000, in contrast, offers an in-depth look at several global environmental issues from a free-market perspective—and certainly a more optimistic one.

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Regulation and Taxation