Fred Smith, founder and president of the Competitive Enterprise Institute, is one of those evil, evil men who takes funds from giant multinational corporations and uses them to roll back government regulation. He's also a walking encyclopedia, lively conversationalist and legendary party-thrower in the zany world of DC-based think tanks.
Smith and his wife Fran (also a CEI scholar) came by the editorial board Oct. 16 to warn against the Law of the Sea Treaty, predict a "dot-com"-like ethanol collapse, rail against California's energy policies and much much more. A few highlights:
(On a global sea treaty.)
Fred Smith: Big issues right now is Law of the Sea Treaty. Ijust saw you had a thing down there about the [altered oceans]. It'san interesting treaty, it's got the support of the wholeestablishment: The Navy, the business community, theadministration, the Democrats, the environmentalists. There aren'tmany people against it. The military, the sort of the, the sort ofthe right-wing military types, Frank Gaffney and something, have done a very good job of arguingagainst. Their position is not the same as ours, although we sortof sympathize with it, is that it seems like the Navy has beentaking over by the JAG. Judge Advocate Court?Court? Group?
Anyway, as far as I can understand, there are people in the Navywho think they'd be perfectly willing to trade off the Seventh Fleet for a vote ofthe General Assembly, I mean it just seems crazy to me, but um.
Matt Welch: Back up about a half a second and--
Smith: What is the Law of the Sea Treaty?
Welch: Uh, and just where it's at, and what, what is yourinterest in it.
Smith: It was 1972 or something negotiated, it was movingforward pretty aggressively when Reagan took over. Everybody toldReagan, "Look, it's stupid but it's gotten this far, we might aswell go ahead and sign it." And Reagan said, "No, that's not why wegot elected for," and said no. And actually in his diary heexplains why: it was just a stupid treaty.
The treaty is big -- it's got 12 or 13 parts of it. The part thatpeople are focused on is part 11, which deals with the Sea-BedAuthority. It creates this essentially socialist enterprise todevelop the sea bed, allow private entries to come in; you can goout and explore if you're a private firm. If you find something youthink is worthy of exploration, you sort of have to divide yourclaim into two pieces. You give them both to the Authority -- thesocialist enterprise -- it picks the one it wants to develop, andyou get to develop the other one. But then if it turns out youdon't have the right -- as you're a poor socialist enterprise --you don't have the right technology, the right institutions, theprivate firm has to share with you. "Now you've got to play withothers, share with your toys."
And then you get taxed for the privilege of doing all that, andetc., and then you've got to jump through every hoop that theUnited Nations -- well, the global establishment -- can have: theenvironmental hoops, everything else, human rights. So it's adesign to make sure you'll never develop the sea bed, right? That,people are focused on; that's stupid.
The point is there's a sort of a codification of the standardnavigation rules. We've got those, everybody agrees thoseare sensible, we don't need a treaty for those. If we wanted atreaty for that, that would be fine. But they've latched all this--it's sort of like having, you know, you can marry the prettysister, but you've got to marry the ugly sister at the same time,you know. It's just stupid to put that in.
The piece that most people haven't focused on -- certainly thebusiness community hasn't focused on it, and it doesn't appear theadministration has -- there's a whole bunch about protecting theoceans in there. Protecting the oceans, well, guess what?Everything flows into the oceans. If we're gonna protect the oceanswe gotta protect what flows into it. What flows into it comes fromrivers; rivers run in nation-states, so the nation-states are underan obligation to ensure that they do nothing that will threaten theoceans. Well suppose they do? Suppose an international group isn'thappy with our farming practices or our chemical use practices, orour industrial practices or our anything? Then there's atribunal that can require, that could be established to sort ofensure that land-based pollution is minimized to threaten theocean.
And this is, what it's gonna be is a windfall for the global, forthe NGOs, the environmental movement; it strengthens them. Itstrengthens the NGOs' role of being able to stop developmentanywhere, including the United States. And also it's just anincredible boondoggle to trial lawyers. [...]
The arguments -- I testified to this, in the [congress]; and thiswas dismissed, this was foolish. Yes, of course the languagesays that, but it's just ... language; we don't need toworry about it because it doesn't mean anything, it's justyou know, uh, dressing, it's just you know sort of language to makepeople feel good.
Well, in America language that makes people feel good led the CleanWaters Act to be the wetlands protection act, led the EndangeredSpecies Act to be able to stop anything over a bug or a minorplant. Led the Clean Air Act to be a national industrial policyact, and on and on. I mean, our laws have teeth, maybe not in othercountries but certainly the United States. And vague amorphouslanguage, the people who we worry about, the regulators, have beenvery very clever at translating vague language into real bitingthings.
And it just seems to me that due diligence hasn't been practiced. Idon't think any of the senators have looked at this. [Sen.David] Vitter has done a good job of focusing in on this, um, andit's worth noting his language. He said, "Well, what does thismean?" Land protection; prevent land pollution andenforcement mechanisms. The enforcement mechanisms is through atribunal. Tribunals are, if you and I agree we can pick ournegotiators; if we don't, they're picked for us. In the systemwe'll be working in, are those likely to be pro-U.S.? Not likely.And even if they were pro-U.S., uh, the use of this kind of vaguelanguage by the U.S. itself has been very dangerous.
The best example of why I want you to worry about the Law of theSea Treaty is the vague, amorphous, hoity-toity language that wasincluded in the preamble to the World Trade Organization. They hadlanguage in the beginning that says, "Everything in this act shallbe in accord with the sustainable development of the earth." Moreor less. Vague, amorphous language. Who the hell would; what couldthat possibly mean?
Well, the U.S. gets into a dispute over Asian nations over shrimp."Those sonofabitches are selling cheap, good shrimp, and puttingour shrimp people out of business." Well, that's life, and youcan't just go in and ask for protectionism.
But! They were growing this shrimp in wetlands near the coasts of the Asian seas. How do we know they weren't endangering wetlands, or mangrove swamps or sea turtles. So we -- well,"we"; the USTR -- launches a complaint. It goes to the World TradeOrganization where it's thrown out, this is stupid.
The term in trade policy is called PPM -- Process and ProceduresMethods? It's a wonderful principle. That says that trade is basedon the commodity, not how it got there. If you have one technologyto produce a tablet, and I have another technology to produce atablet, the tablet stands or falls, if it's the same tablet. It'sthe same thing in trade. I can't reach upstream and say, "Well youused the wrong technology," or "You didn't hire enough women, orminorities," or "You discrminated against some religious group," oryou know hundreds of things that some groups are worried about.
Trade is supposed to work on the product itself, OK? That's PPM,and that's been the basic concept of trade. Because otherwiseeverybody is reaching upstream into other people's regulatory andtax policies and so on, to try to second-guess it. "It's not fairtrade because you did it in a wrong way." It's made possible trade,because everything is essentially a standardized commodity.
Well this idea is, "Well, you're producing the shrimp" -- nobody'ssaying the shrimp were different -- but "you're producing theshrimp by the wrong method. You're threatening something that wecare about it, even though it's your domestic decision on how togrow shrimp, and therefore--."
Well, we lost. But then we appealed, and in the appeal court theysaid, "Well, you still lost, but the language of sustainabledevelopment, had they been developed a little more, the U.S. couldhave prevailed." [...] Look at the way incredibly weak language wastransformed to essentially into changing the whole principle oftrade policy.
Welch: And it really has led to....?
Smith: It's led to this kind of argument being raised moreand more. It hasn't actually threatened trade yet, but it haschanged the essential underlying -- and the environmentalists alltreat this now as established law.
Welch: The "sustainable" thing?
Smith: Yeah. And all of our trade policy now adds more andmore of this kind of language to the trade, the bilateraltrade--
Welch: And you would claim that there's like some connectionbetween that and like asking for union standards or workplacestandards, or?
Smith: Well I would say the argument about "land pollutionhas to be policed," is, what does that mean? I mean how could youreach into the United States, this is about protecting the seas,it's not about; sovereignty is totally preserved, we're told. Well,if I can reach into your country and decide your land-use practicesare wrong, then I'm pretty much, well, I've given you anincredible....
Now of course that won't be exercised by itself; the environmentalgroups will do it, and they'll say, "Under the Law of the SeaTreaty which the United States signed, the farmer in Nebraska hasto change his land use." [...]
Welch: And do you see activist groups who are sort of liningup and recognizing this to be an opportunity to--
Smith: Oh, some of the language behind; theenvironmentalists see this as the biggest; if they get this throughthey've got the biggest coup in history.
Smith: Clinton said something like, this is the mostimportant environmental treaty in the world. Now, he means that asa compliment....
Welch: So where is it at right now? How serious--
Smith: It's been submitted by the administration. There'sbeen two hearings on it; out of 11 witnesses two were opposed.
* * *
On the fate of the sex-scandalized Republican Party, and the 2008 presidential race.
Tim Cavanaugh: Is there any leeway, is there any spaceopening up for a more traditionally conservative Republican Partyas a result of this? It seems like it's moving, everything ismoving in the other direction.
Smith: Well it looks like in the short run there's just gotto be a lot of pain before there can be any gain. Uh. You wouldthink that if there was any time in history for sort of a moderatelibertarian candidacy this would be the period, and yet there'snobody on the right. I mean Paul's doing better than anyoneimagined.
Welch: Yeah, I mean he's the only one who has the, you know,the unlikely campaign that anyone's excited about this year is alibertarian; that's the first time that's happened in a longtime.
Smith: And if he ran as an independent after this is overwith, he might get 10% of the vote. [...] And remember theinteresting thing about this election ... the candidates are likelyboth to be picked by March, which gives eight months of buyer'sremorse. I mean, can you imagine how disillusioned Americans aregonna be by the time November rolls around?
Welch: That's a good point, actually.
Smith: I guess the Democrats might be willing to say, "Itdoesn't matter, it's a Democrat." But the Republicans certainlyaren't going to be that happy.
Cavanaugh: And they're both gonna be; I mean it's gonna be aDINO vs. a RINO no matter how it shakes out.
Smith: And it's gonna be, you know, the purists on bothsides aren't gonna be happy. And neither one of these candidates --assuming it's Giuliani and Hillary -- I mean, I'm certainly notgoing to vote for either one of them.
* * *
(On ethanol subsidies.)
Smith: It still doesn't make any sense.
Welch: But John McCain said that now it makes sense in a waythat, you know, it didn't make sense last time around! But thistime--
Smith: But that is the; he and Hillary were both good onthat issue, which shows how incredibly corrupting this issueis, because they were both on that issue, good on it.
Welch: Has she gone bad too on this?
Smith: Oh she's gone bad too.
Fran Smith: Yeah, yeah. Well part of it is every state justabout can grow corn. Not efficiently, but with the amount ofsubsidies you can get, and then the Farm Bill: if the 2007 FarmBill goes the way the House has termed it, even moresubsidies would be available.
Smith: We think this could easily become, make the dot-comcollapse look--
Fran Smith: Yeah, yeah.
Welch: Oh really? It's like a house-of-cards thing with theprice of--
Smith: There's not enough land in America if we want to eatand do other things.
Fran Smith: And there are also, farmers are now substitutingcorn production for production of other things. [...]
Smith: And the environmentalists have turned against it,you've got some elements of the farm community; the food producers are getting very upset about this. Because ifyou're a, remember, if you're a--
Welch: Why are the food producers so useless? I gotta askthis. I mean seriously, there's a really easy and good argumentagainst farm subsidies at some point, that everyone understands onthe political spectrum, everyone who's rational agrees with, andthe industry that gets the worst hit by far is food production, asfar as I can figure out, guessing. Where the hell are they?
Smith: Well downstream from them is the supermarkets. Thesupermarkets don't seem to care, as far as I can tell. I don't knowwhy; they should care, too. There aren't a lot of food producers,you know -- the big ones are Kraft, Unilver, and um
Fran Smith: Nestle.
Smith: Nestle. And they don't spend a lot of time on thesethings. I don't know why. It's a good question.
Welch: You haven't been doing your work! You need toget--
Smith: No, you're absolutely right, I should.
Fran Smith: When I used to work -- and Fred and some of thestaff members used to work with the food industry -- and they haveso many issues that they're dealing with. They're dealingwith labeling, food safety issues, just new ingredients.
Smith: And all the sugar guys have got to do is just goafter their tariff every year.
Fran Smith: Competition, yeah, coming up with -- what wasthat ice cream that uh
Smith: Merger policies.
Fran Smith: Yeah obesity! Obesity. The obesity issue hasconsumed a lot of food producers over the last five years. So theyhave so many issues, the sugar -- I worked on sugar issues-- the sugar producers, day in and day out, are focused on onething: They visit all the congressional and senatorial offices. Youknow, it's the diffuse--
Smith: It's the old, this is what I always call the Julia Child school of politics? You know Julia Child: "You start off witha gallon of water, a few bones, a few vegetables, and you taste itand it's the most watery thing you've ever tasted in your life. Butif you cook it down until it's about this big and you've got areally good soup!"
Only when industries become economically irrelevant do they havepolitical power in a way. You know, it's sort of the opposite ofwhat you think about. It's a concentrated interest -- they canfocus on one issue rather than the hundreds of issues.
Welch: Give an example besides sugar.
Smith: Uh. (Five seconds silence)
Welch: It's a great theory, I just--
Smith: Well, farming generally is one. I mean farminggenerally -- when everybody was a farmer there were no farmsubsidies; now that nobody's a farmer there's all kinds of farmsubsidies. And that's not one crop, that's lots of crops outthere.
Welch: The Newspaper Preservation Act.
Smith: Manufacturing. When America was a manufacturingsystem, well we don't have an awful lot of manufacturingprotectionism, but we got a little steel and auto protectionisms,about, when, 15 years ago, and then gradually died out. But thenyou didn't get them initially in the auto industry. AfterWorld War II we had probably in those years relatively free trade.Well, nobody could ever compete with us, so it was easy. [...]
The thing, I think the thing to think about in the biofuels area iswhether or not the collapsing support means that this thing is ahouse of cards.
Welch: What's the collapsing support?
Smith: Well, the environmentalists pulling out theirsupport. The human rights groups beginning to point out about, youknow, are we going to starve Africa to death becasue we are--
Smith: Well, and so has Oxfam International and so have thehuman rights groups. So that's what brings in a whole moral levelinto it. You've got the food producers -- a weak voice, I agree.But they're; for example the sweeteners groups, though, do haveproblems, you know. They were sort of driven out of sugar by thetariff, OK? They went to higher-fructose corn syrup. Well, we'renow driven out of that by ethanol subsidies. And chemicals, theonly other alternative, are driven out by the environmentalistsclaiming that, you know, one more Aspartame and my kids won't go toHarvard.
Cavanaugh: So is that when the dot-com collapse happens forthem, when the political support erodes?
Smith: Yeah, well it's totally a political balloon, it can'tgo; and what, but that's gonna be a part of it, the other part ofit is gonna be everybody trying to get through the door at the sametime -- it's going to create all kinds of problems. The price ofthe stuff is going to go up, the subsidies will not keep up for allof them, you know. I mean the subsidy depends on what the existingprice of corn is, the price of corn keeps going up the subsidybecomes less and less attractive, you know. It takes a lot ofsubsidies to make water run up hill as far as this thing is goingto have to run up.