The business environment aheadand how to handle itD. Bruce Merrifield

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.The decade of the 1980s will almost certainly be a majorwatershed period in which many well-known companies willdisappear or be restructured. and other new companies will

. emerge as industrial leaders. Moreover, the growth, and inmany cases, survival of many U.S. businesses in the 1980swill be primarily determined b) two interacting factors. Oneof these is economic and the other involves technology. Theeconomic factor relates to an adverse synergism betweenformer U.S. tax laws and chronically high rates of inflation,which together are causing many American companies toliquidate their fixed assets, often without consciousawareness that they are doing so.

The technology-related factor arises from a worldwideexplosion in the sciences that lias generated in the last 30year; some 90% of the current knowledge in physics;chemistry, engineering, and the biological sciences. As adirect result, much of the capital now invested in thiscountry is invested in obsolete products and processes. "It isimportant to understand both the risks and unparalleledopportunities that are associated with these two' factors, andthe manner in which they affect the marketing function.

For example, inflation must be seen as a direct taxon fixedassets, and a simplistic equation for "real retained earnings"illustrates the relationship:

r Return on:1- fDividends1- rRate of ] =r.e~:oolLequity (ROELl L paid out J linflation L:...ming~

15% -. 7%* -, 10% = -2%

(* Represents the average payout for U.S. companies.)The equation shows that a company reporting a solid 15%

return on equity is actually eroding its assets in "real" terms

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D. Broce Merrifj~l.J, AssiStant CommerceSecretary-Designate for Technology,Productivity, and Innovation. is former vicepresident of technology and venturemanagement for The Continental Group (lHarbor Place,Stamford, Coon. 069(2). He bringsto this position extensive experience in research.research management,. ana' new venturemanagement. Menifie1d.. who is a Princetongraduate and bolds M.S. *00 Ph.D. degrees inphys;c.l ebemistry from the University of .Chicago, is a former director and currentlypresident-elect of theLR.L

when inflation is running at 10% per year, and when it ispaying out 40-50% of its earnings in dividends and hasminimal debt (2/1 equity to debt ratio). Many capitalintensive businesses (steel, automobiles, tires, textiles. etc.)don't report even a 15% ROE and are liquidating their assetsat 5-15% per year.

In principle, a company can reduce its dividend payoutand/or leverage its assets (1/1 equity to debt ratio), but thesestrategies impact the market price and increase vulnerabilityto takeover. The net effect, therefore, is that tax laws thatdo not adjust for inflation provide rates of depreciationinsufficient to reproduce the original assetsat the end of their"useful life." Compounding the problem is that newtechnology is making assets obsolete long before their "usefullife" is realized. The adverse synergism of these factor;(inflation, tax laws, new technology) will likely lead to thedemise of many well-known companies,

Let me illustrate the impact of inflation on depreciatingassets by the following examples: $10 million investment ina manufacturing plant with a "useful life" of 20 year; could(according :0former tax laws) be recovered in depreciationallowances over that period. But at 10% inflation, the sameplant would cost $80 million to replace, Moreover, the$70 million difference would not have been reserved.Instead the'difference has been appearing on the balancesheet. as false profits on which 46% taxes and 40-50%dividends will have been paid oul The new tax lawsallowing more rapid rates of depreciation will somewhatmitigate the effects of inflation, but tbey only apply to newfacilities now being built (Figure 1).

Therefore, the adverse political-economic climate thatnow exists for fixed-asSet intensive operations has createda new set of business guidelines that can. be summarized asfollows: Given a policy of 2/1 equity to debt ratio and40-50% dividend payout, any operation that has more than6O-70¢ of depreciating assets per dollar of sales cannotproduce real retained earnings in a period averaging 10%inflation, and should be harvested or divested. The resultingcash flow should be allocated to either those types ofbusinesses with appreciating assets and/or are "indexed toinflation" such as oil and gas, timber, land; financial andother services, distribution, etc.; or to low capital-intensive,high-growth, strongly proprietary (patented) products orprocesses with a high asset/turnover ratio.

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This lime II's differentHowever, it appears unlikely that a 1929-like depression

will now or ever again recur. ATthough many well-knowncompanies may not survive in their present lorm, we areseeing the emergence 01 new companies in new technologiesat a rate that has never belore occurred. Going back to 1929,the beginning 01 Phase I 01 the last Kondratieff-Forrestercycle, the economy was characterized by zero or negativeGNP growth, high rates 01 inflation (10% per year), a low

the same cycle. His data base comes from a"System-Dynamics National Model" built up in some detailfrom 15 major industrial sectors. Forrester identifies lourphases in the 50-year cycle. The First is a IS-year recessionperiod; the second is a2o-year massive reinvestment period;

, the third is a lo-year continued "over-building" period, andthe fourth is a 5-10 year period 01 economic turbulenceleading into the next recession (Figure 2).

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These options, however, may be unattractive for anestablished company since they necessitate radical changes

operating strategy. The anxiety involved in entering anunfamiliar business is multiplied by the reluctance toconcede that the existing business may not survive, let alonegro\\". Good acquisitions carry a heavy premium in good will,and internally 'generated new ventures have had somenotable failures; The dilemma is real.

There may be a logical explanation for this dilemma. Inthe early 19205, Kondratieff first identified a 50-yearrecession-boom cycle, or "long wave," which at that timehad -persisted for 150 years and which, seemed tocharacterize the capitalist economies. However, there wasno apparent theoretical basis for these observations, and hewas banished to a Siberian salt mine, since his predictionsof periodic capitalist resurgence as well as collapse were notpolitically acceptable at the time.

Recently the M.LT. economist']. Forrester rediscovered

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options for many applications (Figure 4).Similar revolutions are occurring in almost all areas of

business. Another SO-yearpoolof underused technology hasnow accumulated that represents 90% of allknowledge everdeveloped in the sciences. This enormous pool of technologycan be expected to spawn continually a proliferating arrayof new businesses that will be the IBM and Xeroxof the nextdecade. For example, current work in biochemistry will seesignificant intervention into the learning process, memory.and the treatment of mental disease. as well as majorprogress in cure of viral diseases, including cancer. The lifespan will likely be extended many years, and genetic defects(diabetes, sickle cell anemia, certain forms of mental!retardation) will progressively become correctable throughgenetic manipulations.

Electronics will tie the world together in "real time"through satellite and fiber optic communication systems,bringing electronic mail into our living rooms within a fewyears. Instant access to the Library of Congress and to otherworld data banks will become commonplace. producing anenormous growth in life-long continuing adult education.and. introducing new dimensions to the marketing function,for all businesses. Computer-aided design and optimalanalysis theory will telescope engineering development timeframes and further accelerate the demise of olderfacilities.

Equivalent revolutions are occurring in the area of energyand energy systems. the materials sciences. specialtychemicals. food sciences, packaging, and financial services.

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Figure 3. Management focus...return on investment (ROJ) in capital intensive sectors,declining profits, increased debt, tightening credit, decliningcapital investments. high interest rates. and perhaps most

'importantly. over-capacity relative to worldwide demand.Moreover. the focus of management was no longer onproduction and marketing, but primarily on legal andfinancial aspects of business; and R&D budgets were bothdeclining in constant dollars and were focused more tightlyon short-term productoplimization. Major new innovationstended to be discouraged or rejected. Management tendedto be anxious and conservative. Plant facilities andequipment tended to have reached the limit of productivityfor that state of the art, and justified little additionalinvestment The marketing function reflected these changesin decreasing budgets and diminished creativity (Figure S).(This is a familiar syndrome some 50 years later.)

As the cumulative effects of over-capacity, cutbacks' ininvestment, and conservative short-term focus managementwere felt, the world economies slid into depression. But apool of undernsed new technology that had beenaccumulating for 30 years was now available to fuel amassive reinvestment in the capital sector. Managementagain lcoked to innovation. production. and marketing asthe new technology resulted in much higher productivityand therefore decreasing inflation. The momentum of thissecond phase of the Kondratieff cycle continued beyond thepoint where demand arid supply were again in balance(1965) to again produce a worldwide over-capacity in thebasic industries. Moreover. these maturing technologiescould no longer generate increased productivity to matchrising costs. and infJation resumed. We are now in the finalstage of the cycle with recession cycles deepening as manyfixed asset intensive companies erode their assets in realterms.

The key factor in their self-liquidation is this inability tofurther increase productivity in obsolete facilities. Theopen-hearth furnace can no longer compete with the basicoxygen furnace, let alone with the new Swedish plasmatechnology. Even more significant is the fact that soongraphite-reinforced plastics that are stronger than steel,lighter than aluminum, and do not corrode or suffer stressfatigue. will further erode the metal markets. In fact, we canexpect the new' "engineering plastics" to progressivelycapture specialty markets that now use steel. aluminum.zinc. and copper. as.an explosion in materials sciencesprovides an increasing array of cost/performance superior

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Projects with less than 70 polntshave rarely been successful

1h,.,.,. b,"iilc,,;<.,;;;m nolonl) be high ill growlh rail', but",i1jtend to be low in capital intensity and therefore much lessvulnerable to inflation. Strong proprietary character willmake them much more profitable because of their highasset/turno\'er ratios, Moreover, they will cause a progressivefragmentation of large market areas into many niche orspecialty markets, each served by continually changing newproducts or processes.

The management of the future, therefore, is themanagement of change. Technology is the engine, andstrategic planning is the guidance system. Marketing mustfunction both as eyes and ears as well as in delivery, Adisciplined process of selection from among this proliferatingarray of continually changing opportunities will become anincreasingly important function.

A simplistic logic tree for doing this can be described ina three-step regime (Figure 5). Each of the questions has anexpanded check list of critical factors designed to assess theprobab'!ity of commercial success, once technical successcan be de~onstrated.

This "constraint analysis" has correlated with success in

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8 out of 10 cases over a dozen years of use and is helpful in.analyzing existing businesses or profit centers, as well as newventures and R&D projects. (The 2-out-of-l0 failuresresulted from unexpected regulatory interventions and fromthe oil embargo, which altered the raw material economics.)Figure 6 shows an expanded check list of critical factors thatneed to be addressed. Each factor is scored on a scale of 0 to10, giving a maximum possible score of 60 for "businessattractiveness" and 60 for "company strengths." Statistically,those opportunities with scores of 80 points or higher weresuccessful in 8 out of 10 cases. Below 70 points, theprobability of success falls off rapidly. _.

- The data base needed to quantify the six factors listedunder "business attractiveness" and the six under "companystrengths" shouId"include a careful market segment analysisthat defines real customer needs and the nichescorresponding to those needs. Also useful is a sensitivityanalysis of production and marketing costs as shown inFigure 7. This figure quantifies the effect upon thediscounted cash Flew return on investment (ROI/DCF) ofeach factor as it is independently changed. The sleeper theslope, the more sensitive is the factor and the more carefullyit needs to be analyzed and controlled. Using this type ofanalysis allows direct comparison of dissimilar opportunitiesfor allocation of limited resources. Weaknesses must bespecifically addressed and can often be corrected byacquisitions or by joint ventures with other companieshaving the needed strengths.

In summary, it appears unlikely that the U.S. willexperience another 1929 collapse now or in the"future.Instead, a major disproportionation will occur over the nextdecade, in which those companies that are innovative andare doing effective strategic planning will do exceedinglywell, while others fail, are restructured. or are taken over.Once this traumatic readjustment period is over, the U.S.may be launched into one of the most growth-orientedperiods in history. A continuous evolution of newtechnologies, combined with the obsolescence of oldertechnologjes in 5-lo-year time frames, will preclude the50-year cyclic buildup and collapse syndrome.

Moreover, it would appear that a creative marketingfunction will be both a necessary and increasingly important

focus of management concern as this process unfolds.Progressive fragmentation of large markets into manysmaller niche markets can be expected, with each nicheserved by its own best cost/performance solution for itsneeds. A meticulous and continuous process of marketsegmentation analysis will be a key requirement of themarketing function as new technologycontinuously developsnew possibilities. Sales, advertising, distribution, andfinancing strategies are likely to remain in a continuous stateof change.

This emerging era will put increasing emphasis onlife-long continual personal growth and development, andupon the management of diversified business portfolios inorder to mitigate the risk of sudden obsolescence. Thequality of life in the U.S. and in other developed anddeveloping countries may see an exponential improvementas these events take place. But the U.S., in particular, withits unparalleled depth, breadth, and strength of industrialinfrastructure could be the major beneficiary.Adapled with permission from a lectur~ belore The Conference Board. October198!.

References(1) Abels, D. F. "Using Pirns and Portfolio Analysis in Strategic Market

Planning:' presented at the 23rd Int. Meet. Ind. Manage. Sc(.,Athen" Greece, July 1977.

(2) Day, G.S."Diagnosingthe Product Portfolio," J. Market. 1977,April,29-38. •

(3) Crawford. C. M. "Defining the Charter for Product Innovation," SloanMonnge. Rev. 1980, Fall.

(4) Hershman. A. "How to Figure Who's Going Bankrupt," Dum Reo.1975, October, 63-65; 1Oi-I08.

(S) Conley, P. "Earnings Never Tell:' Boston Consulting CroupPerspectives 1978, June.

(6) uAre There MoreChryslers in the Offing," Forbes 1981, Feb. 2.(7) Merrifield, D. B. "Strategic Analysis. Selection, and Management of

R&D Projects:' AMA Manoge. Brief. 1977, AMACOM.(8) Gall, N. "Innovate or Die:' Forbes 1981. Nero. 9, ]55-162.

. (9) F. G. Harvard Bus/ness Review 1975, September-OCtober.(10) Freeman, C. "The Economics of Industrial Innovation"; Pengulte

Harmondsworth, England. 1974;Chap. 8. '(II) Bennett, R. C; Cooper. R. G. "Beyond the Marketing Concept,"

Business Horizons 1979. June, 76-83.(12) "Corporate Culture:' Business Week 1980. OcL !27, 148-160.(13) Mass, N. J.; Senge, P. M. "Heindustrialiaation: Aiming for the Right

Targets: Technol. Ret>. 1981, August-September.(14) "Echoes From a Siberian Prison Camp.... Forbes 1981, Noo.9.(15) Forrester, J.W. "Innovation and the Economic Long Wave:' Paper

No. 0.2990-1. Symp. Technol. InnoootiLm Corporate Sfr.afegy,London, Nov. 16. 1978.

.

BUSINESS REPORT

Conservatives Eyeing Tax Reform As StepTo Pro-Business Federal Economic Role

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In a turnabout, some conservatives are talking industrial policy. At the top of theirwish list are tax proposals to lengthen depreciation and extend R&D credits.

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EVERYTHING'S RELATIVE

have been meeting regularly as the La­bor-Industry Coalition for InternationalTrade to suggest ways to use trade policyto improve competitiveness.

"A thread that runs through all thesesolutions, from left to right, is that some­one has to take responsibility for thisproblem," said Jeff Faux, president of theEconomic Policy Institute and an advo­cate of industrial policy.

With that responsibility would comeconsiderable authority. "The bottom linepolitically-is this: a new round of govern­ment involvement in the economy isdeveloping, and the question is, who is tocontrol it;" noted Phillips.

Mainstream economists have generallyblamed the mounting U.S. trade deficiton an overvalued dollar. "The over-all

performance of the UnitedStates does not suggest a long­term problem of competitive­ness," said the 1983 EconomicReport of the President.

But increasingly, econo­mists argue that more pro­found problems arc at the rootof the economy's internationalills.

"Some overvaluation of thedollar may be unavoidable forthe foreseeable future," saidBruce R. Scott, professor ofbusiness administration atHarvard University BusinessSchool. "\Ve may have to[learn to] compete underthese conditions. The ex­change rate cannot always be

used as an excuse."A study by Scott and his associates at

Harvard Business School, Us. Competi­tiveness in the World Economy (1984),concluded the problem is "one of relativeperformance, not absolute decline," he

proach would improve productivity byrestructuring the tax code, liberalizingantitrust laws and beefing up federal sup­port for R&D, all spurring export-ori­ented economic growth.

"To be opposed to the industrial policyapproach does not presume that govern­ment cannot and should not play an ac­tive role in economic growth," said Rep.Daniel E. Lungren. R-Calif. "Promotingeconomic growth is best achieved by fos­tering a competitive environment."

"The proper role for government is tocreate an environment for innovation,"said Rep. Ed Zschau, a fellow conserva­tive Republican from California.

Early next year, the President's Com­mission on Industrial Competitivenesswill issue its report, which likely will urgecloser government-industry cooperationin the economy. A 1983-84 Harvard Busi-

ness School colloquium involving leadingacademics and corporate chief executivescame to similar conclusions. Republicansin both the House and Senate havedrafted competitiveness agendas. Andtop-ranking union and business leaders

"Political conservatives mustaccept a new pro-business role

for government-fromcoordination ofeconomic andtrade strategies to targeting ofexport assistance and credits,"

writes conservative analystKevin R Phillips.

BY BRUCE STOKES

W hile the Reagan Administrationbasks in its overwhelming election

victory, which could be interpreted as anendorsement of President Reagan's mini­malist approach to "government, a loosecoalition of businessmen and conserva­tives is advocating a concerted govern­ment effort to improve the internationalcompetitiveness of American industry.

"The laissez-faire conservatives' viewof the role of government is simply inade­quate in today's global economy," saidconservative analyst Kevin P Phillips,author of Staying on Top: The BusinessCase for a National Industrial Strategy(Random House, 1984). "Political con­servatives must accept a new pro-businessrole for government-from coordinationof economic and trade strategies to tar­geting of export assistanceand credits-as a necessity."

The coming battle over taxreform will be the first test ofconservatives' "competitive­ness strategy." Several taxproposals being floated-suchas lengthening depreciationperiods and extending taxbreaks for research and deve1­opment-e-would, in the viewof some, encourage invest­ment in areas that improveU.S. competitiveness in the in­temational economy.

In recent years, many liber­als have advocated an indus­trial policy to revitalize failingindustries through the cre­ation of a bank to finance eco-nomic reconstruction and a national gov­ernment-labor-industry board to directthese efforts. Such an industrial policywould target specific industries for gov­ernment help.

In contrast, the conservatives' ap-

2298 NATIONAL JOURNAL 12/1/84

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borrowing is crowding out corporate bor­rowers and raising the Cost of capital.

In addition, some charge that tax Jawsare biased against the long-term invest­ment needed for permanent improve­ments in productivity. They argue thatthe economy needs a mix of investmentsthat go beyond the three-year strategy

encouraged by current depre­ciation rules.

The Senate RepublicanTask Force on IndustrialCompetitiveness and Interna­tional Trade, reflecting an in­terest in the computer indus­try by some members,suggests the opposite taxchange for high-tech firms, al­lowing them to deduct invest­ment costs immediately tocope with the rapidly chang­ing nature of computer tech­nology.

The President's commissionand the Harvard study alsorecommend identical taxtreatment for equity and debt.Now dividends are an after­tax cost, while interest pay­ments are tax deductible.Thus raising money by sellingstock is costlier than borrow­ing, discouraging companiesfrom tapping potential share­holder capital. Equalizing taxtreatment would cut the costof capital raised from thestock market, according toJack M. Albertine, presidentof the American BusinessConference, a lobby for smalland medium-sized high-techfirms.

Congress has already lentsome support to such propos­als. The 1984 Tax Reform Acthas two provisions that di­rectly affect investment. Itnow allows U.S. firms to writeoff R&D expenditures for for­eign operations and reducesthe long-term capital gainsholding period from one yearto six months, which Scott ar­gues encourages speculationnot long-term investment.

There seems to be supportfor more extensive cost-cut­ting initiatives. According toan Opinion Research Corp.survey in April and May. 71per cent of ] 03 Washington

opnuon leaders think the high cost ofcapital has contributed to a lack of long­term investment in industrial capacity.

There is also widespread agreementamong those concerned with improvingU.S. competitiveness that the future well-

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Jack M. Albertine of theAmerican Business Conferencefavors tax changes to cut the

cost of raising capital from thestock market.

compared with 32 per cent in Japan.Moreover, much of the U.S. investment isshort-term speculative investment.

One reason investment lags is that in1981, American industry's average cost ofcapital wasLo.f per cent, compared with9.2 per cent in Japan, says a CommerceDepartment study. Experts think this

capital cost differential harms competi­tiveness as much as a wage differential.

Most observers agree that reducing thefederal budget deficit is the single mostimportant thing that can be done aboutcapital problems because government

RAISING CAPITALIncreasing the incentive for industrial

investment by lowering the cost and in­creasing the availability of capital is cru­cial.to improving U.S. international com­petitiveness, say many business leaders.

U.S. gross capital formation-total in­vestment plus depreciation-was 18 percent of gross domestic product in 1981,

saidl "The central issue is current perfor­mance compared with preceding de­cades, performance relative to our majorcompetitors and performance relative toU.S: goals and commitments."

In 1960, for example. the U.S. share ofworld trade was 16 per cent; by 1980, ithad: fallen to 1J per cent, before majorproblems began with the dollar. Despite apositive export balance in high-techncl­ogy: products, U.S. manufacturers ofitems such as aircraft, computers, drugs,engines and electrical equipment havesteadily lost market share to foreign com­petitors since 1970.

While these data are not new, the Har­vard report contends that they have neverbeen taken serlously cnougb becauseU.S. performance has traditionally beenjudged against the European trackrecord, which is even worse. 'That is likeGeneral Motors comparing itself withChrysler while disregarding Toyota,"notes the study. Japan and the countriesof East Asia are now a more importantmarket for U.S. exports than any of themajor European nations and are a moreimportant source of U.S. imports.

The Harvard researchers attribute therise of the East Asian countries' econo­mies to their determination to transformtheir competitive position. Asians chosethose sectors of the economy theythought could be competitive in the fu­ture, and then used the power of the stateto bring those industries up to interna­tional standards.

"The Asian five [Hong Kong, Japan,Singapore, South Korea and Taiwan]have-shown the world how to become richby discrete and careful protectionismcombined with comprehensive domesticorganization for education, productivity,technological innovation and effectiveparticipation in the global corporate sys­tem," Scott said.

Not all business executives and conser­vatives would agree with this analysis,but there is a growing consensus that thecompetitive threat posed by the PacificBasin nations is, in part, due to the activ­ist role their governments play in theireconomies.

In response to the mounting East Asianchallenge, the Harvard study calls for a"national strategy to utilize marketmechanisms to emphasize work. savingandinvestmern."

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NATIONALJOURNAL '2/1/84 2299

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For example, the chamber points outthat 75 per cent of corporate capital out­lays come from internal cash balances.Thus, raising corporate taxes, says thechamber. would inhibit investment byreducing available financial resources.

In the eyes of many experts, key provi­sions in the major tax reform proposalswould have an impact on competitive­ness, and often in a counterproductivefashion.

The so-called fair tax plan, sponsoredby Sen. Bill Bradley, D-N.J., and Rep.Richard A.Gephardt, D-Mo., wouldraise the corporate tax ra;e and eliminatethe distinction in tax treatment betweenshort and long-term capital gains, whichmay discourage long-term investment. Itwould also eliminate investment tax cred­its and the special R&D investment taxcredit. And it would substantially in­crease the period over which assets aredepreciated, which would discourageshort-term investment.

By comparison, the «fast tax" plan,sponsored by Rep. Jack E Kemp, R­N.Y., and Sen. Robert W. Kasten Jr., R­Wis., would reduce the corporate capitalgains tax. It would also continue to per­mit rapid investment write-offs, whichwould discourage long-term investment.The plan would eliminate the consumerinterest expense deduction, except forhome mortgages and education loans,which would force people to save in orderto pay cash for consumer purchases. Un­til that money was used for consumerpurchases, it would be available throughthe banking system for investment. Butthe plan also would do away with invest­ment tax credits and R&D tax credits.

Many conservatives argue that if thegoal of tax reform is not just simplicitybut improving the economy, then the in­come tax should be replaced with a tax onexpenditures. The cash flow income tax,introduced by Rep. Cecil (Cec) Heftel,D'Hawaii, would exempt from taxationmoney that is saved or invested. Intereston consumer loans would no longer bedeductible, but interest on borrowing forinvestment would. For corporations, newinvestments would be immediately sub­tracted from the tax base, rather thandepreciated, encouraging new, but possi­bly short-term, investment.

The final Administration tax plan isnot known. But on Nov. 27, the TreasuryDepartment suggested lowering the cor­porate tax rate from a graduated rate ofup to 46 per cent to a flat 33 per cent andproposed allowing companies to deducthalf of all dividends they pay to share­holders, effectively lowering their costs ofraising capital. It also suggested adjust­ing capital gains for inflation before tax­ing them. possibly creating an incentiveto hold investments longer.

~l!1l5II

time needed for government clearance ofhigh-tech exports, an issue the 98th Con­gress wrestled with to no avail. It mayalso suggest expanding the scope of gov­ernment remedies for unfair trade prac­tices by foreign firms. It may suggestincentives for domestic industries that getimport relief to improve .their competi­tiveness, a move supported by the:Senatetask force on competitiveness.

TARGETING TAX REFORMMost observers agree that over the next

year, efforts to reform the tax system will

be the single 'most important congres­sional activity affectingthe U.S. positionin the world economy. To date, debateover various proposals has not focused ontheir competitiveness implications. Infact, there is no agreement on whatshould be in a tax reform bill to maximizethe economy's international strengths.But. reform proponents agree that lowertax rates and reduced government subsi­dies are consistent with a more efficient-,industrial system.

"It may take a decade toaccomplish" a competitiveness

strategy, says HarvardUniversity Business Schoolprofessor Bruce R. Scott.

/. ; i.

being of the economy is closely related tothe level of private and governmentR&D.

Jn J982, the United Slates spent 1.8per cent of its gross national product onR&D, while Japan was investing 2.5 percent, according to the President's com­mission.

In its waning days, the 98th Congressenacted what many think are key encour­agements for private R&D, removing ma­jor antitrust impediments to joint R&Dactivity, extending copyright protectionon.semiconductors and toughening coun­terfeiting laws.

The President's commissionalready has recommendedmaking thy R&D tax creditpermanent, a move stronglysupported by the Chamber ofCommerce of the UnitedStates and other businessgroups. The commission willalso suggest a change in howthe credit is calculated. Nowit is incremental, based on theannual increase in expendi­tures; the commission wouldlike to see it be based on thefull amount of a company'sR&D, which would tend toincrease the credit.

To better coordinate fed­eral R&D expenditures,which now account forroughly 43 per cent of thenation's total R&D, the com­mission is likely to recom­mend the creation of a Cabi­net-level Science andTechnology Department.

Many conservatives com­plain that fragmentation ofU.S. trade laws and policiesare a disincentive for busi­nessesto enter the interna­tional market. «Our policy is amess, and we do things thatdon't acknowledge the global­ization of the market," said acommission staffer.

For example, "if other mar­kets are governed by amonoply, as is the case in tele­communications, and we havedestroyed our monopoly[American Telephone & Telegraph Co.],that puts us at a competitive disad­vantage," said Alan Wm. Wolff, a deputyU.S. trade representative in the CarterAdministration.

The commission has discussed revisionof antitrust laws so that a firm's size inthe world market, not solely its size in theU.S. market, is considered when the le­gality ofa merger is being judged.

The· commission will likely proposestreamlining export controls to reduce the

2300 NATIONAL JOURNAL 12/1/84

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tions by cutting labor costs, thus reducingthe American standard of Jiving.

Business executives in traditional in­dustries also criticize many of the capitalinvestment incentive proposals now beingsuggested because they are oriented to­ward the development-capital needs ofhigh-tech companies while neglecting thelong-term plant investment needs of in­dustries such as steel and autos.

Conservatives do not support targetingindustries for help, but at the same time,the desire to create a more competitiveeconomy is driven by an analysis that the

United States is losing itscompetitive edge in high tech­nology. The suggested policyresponses would lower capitalcosts in all industries butwould probably favor high­tech, capital-intensive firms.There is a similar bias in fa­voring rapid depreciation orcuts in short-term capitalgains taxes. While competi­tiveness advocates do not ex­plicitly favor targeting theAtari Inc.ts of the future overthe Bethlehem Steels, theirproposals would have that ef­fect.

The distinction between lib­eral and conservative positionson government activities toimprove competitiveness of­ten turns on whether interven­tion is direct or indirect. Opensupport of specific industrieswould be too political, saymany business leaders, andsubject to pressure from spe­cial interests. "Without 'thecapacity to plan out in theopen." said Faux, "then it allbecomes politics. As long asit's informal, then whoeverhas the resources will shapethe strategy:'

"Proponents of industrialpolicy have corne up with con­crete things that you can pointto---a bank, a board-whilethe opponents have come withminor adjustments that seem

more ephemeral," said James R. Morris,the chamber's survey research director.

Competitiveness strategy proponentsare not sanguine about the chances forpolicy changes in the short-run. "It maytake a decade to accomplish this," Scottacknowledged.

Nevertheless, even old-line conserva­tives such as Phillips see some form ofconservative policy as inevitable. "Ameri­can businessmen must set aside old con­cepts of laissez-faire and adjust t~venadvocate-new kinds of business-govern­ment collaboration,' he said. 0

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"Promoting economic growth isbest achieved by fostering a

competitive environment," saysCalifornia Republican Rep.

Daniel E. Lungren.

can be marketed to the public and Con- .gress.

The President's commission, whichwould be uniquely qualified to educatethe public, is scheduled togo out ofbusiness On Dec. 31.

LEFT AND RIGHTThe notion of a business-oriented com­

petitiveness strategy has met a chorus ofobjections and raised questions from boththe left and the right.

"It's the conservative philosophy underthe label of competitiveness strategy,"

said a liberal House committee staffer.Richard W. Rahn, chief economist for

the chamber, questions the need for con­certed public initiatives. "We were for awhile losing competitiveness, but wepassed the [J 98] Economic RecoveryTax Act] and suddenly we are regainingour technological edge," he said.

Liberal proponents of industrial policyfear that merely creating a competitiveenvironment will be insufficient. Withoutdirect government support of industry,they say, the United States will be forcedto compete with the newly industrial na-

These proposals are in line with a corn­petitiveness strategy. However, Trea­sury's plan would eliminate the invest­ment tax credit, a move sure to beopposed by many industries.

Of the greatest importance to interna­tionally oriented businessmen and econo­mists, Treasury would replace the Accel­era ted Cost Recovery System (ACRS) offiguring depreciation with a Real CostRecovery System (RCRS). ACRS allowslarge write-offs for companies that investheavily in real estate, plant and machin­ery but has been of littJeuse to electronicsfirms and others in the high-tech field.RCRS would index the basis of deprecia­ble assets for inflation, and depreciationallowances would approximate real eco­nomic depreciation.

On the plus side for competitivenessstrategy. such a change would probablyshift investment away from real estate, asector of the economy that can never becompetitive internationally. But it mayalso drain some investment from heavyindustry, where the United States hasbeen losing ground internationally.

Many observers think tax reform isunlikely in the 99th Congress, and im­proving industrial competitiveness is cer­tainly not the prime objective of reform­ers. However, the' internationalramifications of what is now largely adomestic issue may surface as a result ofth'e debate on these proposals. '

The White House position on tax re­form will be crucial. "I think the Admin­istration wants to decrease taxes on capi­tal gains but won't increase them onconsumption," said James P. Love, aneconomist with the Center for the Studyof Responsive Law. 'That won't increasesavings and as a result' doesn't have aprayer of increasing capital forma­tion."

Other competitiveness.strategy propos­als are likely to be equally difficult toenact. «It is going to be hard to sell tobusiness decision makers or to Membersof Congress," said Allan D. Cors, directorof governmental affairs for Corning GlassWorks.

Similarly. survey data suggest thatpublic opinion .continues to be againstgovernment involvement in the economy.Only 37 per cent of the 103 Washingtonopinion leaders surveyed 'by Opinion Re­search Corp. thought government shouldprovide loans and tax credits for selectedhigh-risk ventures with strong export po­tential. And only 33 per cent of businessexecutives polled in January by LouisHarris and Associates Inc. supportedmeasures such as central strategic plan­ning to save decaying industries.

The loose-knit nature of the variouscompetitiveness proposals inhibits thecreation of a neat legislative package that

fA.~

~..W:,II'

NATtONALJOURNAL 12/t/84 2301

An exclusive report on the Reagan Administration's'economic; regulatory'and'nialiagi"nerlt'polilll'ili..;<~ ..."" .' ", .. _.,n;>.__,':Y· "._0 .....-.. 'r,-~-";\V ··..'·-,cil -",',,- " -0' ,. '-,' ··"·~'''~:'A_,·· ,,",.,

Vol: 3, Nod8.SepteDlbk7, 1984""',U] 2~s' 4';:l(}r;:

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IESCHARGES TREASURY IS POLITICIZING STATE FISCAL STUOY

.: -: -.,::",;":;: :.,,": ,'.', •. ':;',':L~·:·.'_:'/-r:·i ~.:?-:: ',:,_Looking at a $29(),292-billion defense spending bill,

ONGRESSTO HOLD'~SUMMIT';TOREACHCOMPROMISEON DEFENSE SPENDING

J(ey.·t()rig~disioiuiimernberi'onthe~udget,Appropriations and Armed Services Committees are ex-ect~dto llleetthisrnonthiJJ. a highly unusual joint sessio~ being billed as a 'Defense Summit' - to

h. mer 0llt l'l compromisebill?n defensespending which could total between $290-$292-billion. Inform­ed urces saythere isa growing ~onsens~s developing among key Republicansand Democr~ts. that theCong . smay be able to agree to a defense bill in the $290-292-billioll range as'contrasted to' the Reagan

, Adminis ationproposalof$299'billionapproved by the Senate and the $286"billionlevelagreed to bythe House. key source said Senate Majority LeaderHowardBaker(R-TN) has privately'told key con­gressional m .' bers that he thinks a d~fens~summit meeting-is a "good idea." Sources say the meeting ­whichis expect~to be held after Sept: IO~ was the idea. of Sen; Lawton Chiles (D'FL) W?O isranking

(continued on pageS)

The National League 0 Ciiies~haScharged the TreasuryDept.isattempting to inject politics into a'broad congressi?nally-mandat study on federal ~d statefiscalissuessaying a draft of the study "pro­ceeds from the assumption that t 'deductibility of state and local taxes and the.is~uan~eoftax exemptbonds denote federal subsidies," In Aug.30letter, FrankShafroth; legislative counsel-for the NationalLeague of Cities told Treasury Deputy'.. sistant Secretary Robert R~fuse that Treasury's contention"ver~~s upon being a conclusion before the. uestion has e~en been examined." One source said theTreasury Dept. is attempting to "shape theou . e"sothat it evolves into a "biased and self-serving pro­posal" to generate state and local government tax tions that Treasury could'cut to lower the federaldeficita~( the Reagan Administratforrprepares policy tions to overhaul the tax system;

Shafrothtold Rafuse "thepertinents.ection of the. '[Local'Government and Fiscal Assistance'Amendments of 1983Jtallsupon the 'Secretary to examine e 'impact ofstate and local governments of'

"'>~ 0.;,;(1" "}:j:;,t"AJYH:{fiHr;;;r"",';:~ i'ft';,:iii;L.i' ".;·:;t,.S J",.,_~_, H~ _" .•'_0, .'

- (continued on page 8).i::, C,:; ,',~ 1::1. :.'::1;'-;1 :';':;;";';'::'~;:::,....:-';';:;2.'51 ;n5,"Hl1'$H,"

Without conslilting the Justice Dept.

COMMERCE DRAFTING LEGISLATION TO EXEMPT BIG MERGE

Secretaryof Commercer:-1alcolmBal~rigehasdirectedhis staff to dr a specific legislative proposalto exempt big mergerssubjectto int~riseloreigncompetition from section 7 0 he Clayton Act, a majorfederal antitrust law. so~rcesspeculate;tliin Conunercewill askthePresident to e the proposal partof his legislative agelldashouldhe1:leie:~I€cfedinNovember. Sources say Baldrige Ii directed Com-me~~e General Cou~seltrvi!1gMar¢iiliesfb'Oraft the bill which is considered to be a "hi riority" at thed~partment.Tl:teJustkeDellt.,thel1gen~yresponsibleforenfOrcing federal antitrust laws, not beenconslilt~d or asked tocoll1lllent?n Comm~rc~'splansto propose- new federal antitrust legislati althoughSOurces say Jlistic,:'''may be consuited'''befoie' the.billissent toCongress.

"".,AkeYJustlce'D'ept-r'soufce said'lasl1'weerehe is llnaware'ofCommerce effortsto amend federal an­titrust laws ~d sugge~t~dit was being do~esecretlY'withouttheParticipationof Justice to avoid a con­flict between the two'agencies; wrIng the past-year; both agencies engaged in lively discussion over how

• . t l •

(continued on page 7)

OMS INVESTIGATION WILL DIRECT'DOE TO COMPLY Wlnf PRESIDENTIAL PATENT ORDER.. .. , .. ,'.... '}- -,01 c:: -..." .

The Office of Management & Budget (OMB)is planning to order the Dept. of Energy (DOE) tocomply-witha presideQtial4irectiv~th;ltordets.'federal agencies; ~~totI1eexte!1t possible," to give privatecontraetors-therightstcpatents·,for,in.vention~ideveloped.withfederal funds,following. an OMB investiga­tion into,the-issue,whic.h(,was raised.by Sen..Finanee CommuteeChairman.BobDole.. In an Aug..24 letterto OMB's Associate-Director Fred Khedouri, who-oversees feclefahpat~!1tPP!icy,DQle.comI!lained DOEpractices are-not consistent with Administration patent policy and are unfair to DOE private contractors.Dole was reportedly angered last month when DOE lobbied, withoutOMB approval, against legislationhe authored to implement an agency-wide patent policy; He asked OMBtoinvestigate DOE's patent

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line, the Cold-Fighter"le,'endipity Spawns Research That Suggests the Metal Is Nothing to Sneeze At

The Risks

the tabletswill retain their apparent effectiveness~ theyare alsomadepalatable,

M eanwhile, backin Austin, two thingshave happened. One is that Karen

. . . .: Eby,now8, has recoveredfromherleukemia. The other is that her fa­

ther has set up·George&by Research Inc.-anonprofit, tax-exempt public charityto delve fur­ther into the therapeutic potentia! of zinc. £byhas been notified that his patent of a zincgluco­nate lozenge to shorten thedurationofcoldswillbe issuedJan. 2%. Assuming the knenges even­tuallywinFDA approval, sales will help to fundfurtherresearch.

.Still, full FDA approval will probably take atleast three yean, and Ebyis alreadychamping at ~the bit. U he can get funding, he plansto launch ;studiesthat will pit zinc againstherpes viruses- Z

both genitaland oral-and then to probefurther athecommon metal', allegedability to detoxify in. 2seat stingsand snake bitesand relievemenstrual ~cramps,

Even· this taU order will, says &by, barely ~scratch thesurface ofzinc'spotentialsince there §ue alsoreports .iI the scientific literature of its ~.activity againstdozens ofother viruses.Zinc may ibe good for boosting the aging.immune system 5and for treating certain types of prostate gJan:dinfismation. _ '

"I intendto stay in medical research,· he says. /II'True, Jdon't have scientific credentiala. Butyou idon't have to be i'.ighJy trained in medicine to of. l:;fer 1eadenhip." •

JfldjUl RizM4J it tM JCinru~t j" 1MW....iowtmo ''''''''''o/IMN"" Y... DoU,N..... p

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By Judith RandalSpecialIo,"",\Il'~POot

I n 1979, Karen Eby,a'3-year-oJeUn Austin.- .. Tes., wastakingzincgluconate as a dietary

supplement because she had leukemiaand-like manyleukemic youngsters-was

deficient in zinc.One day,when~e was comingdown witha cold,,sherefusedtoswaUow the tab­let andinsistedon lettingit melt in her mouth.

It wasto changeher father's life.When Karen's sneezes, sniffles and sCratchy

throatvanished withinhours,GeorgeEby,an ur­ban planner, couldn'thelp noticing. Hadthe childstumbled onto an important discovery? Or wasthis merelya fluke?

Eby·dug into the considerable scientific -liter­ature on the healing properties of zinc andbroughthis findings to the attention of Dr.W"Jl.liam Halcomb, the lamiIy'. general pnctitioner,and nutritional scientist Dr. Donald Davisfromthe University ofTexas' Clayton Foundation Bio­chemical Institute in Austin, At first, the threemen used the compound on themselves whenthey had colds lJ!d gave it. to relatives andfriends. The results were so consistentlyprom­ising that when Eby inherited)Jomemoney, thetrio recruitedsomecoldsufferers fora more rig.orouslyscientific trial,

Participants were volunteers who.·withoutknowing which waswhich,tookeither actual %incgluconate tablets or pJacebos-look..uJte dum·my lozenges. Ideally, these bwnaa guinea pigswould alsohave been testedto be lUre they wereactually infected with rhiDoviruses-the kDOwncause of common colda-but £by and hit coJ.leaguescouldnot afford to hire a microbiologistto do the anI1yses. However, Halcomb euminedtbe recruits 8IId disqualified tbosehesuspectedmighthave allergiesor bacterial infections rath­er thanbona fidecolds,

Each volunteer was given either a seven-daysupply of l8o-milligram zinc gluconate tablets(each containing 23 milligramS of zinc) or anequivalent number of placebos. They were in-structed to suckon them for at least 10 minutes Zinc gluconate is available without pre-to bring the tablets' contents into direct contact . scription at some pharmacies and healthwith the tissuesof the throat where rhinoviruses . food stores-, But before trying it, talk itreplicate. (Cold viruses also spawn in the nasal overwithyourdoctor.Then, if youdecidepassages,and Eby, Halcomb andDavishad ear- to go ahead, do not exceed the dose £bylier informally tried zinc nose drops and zinc na- endhis coUeagues used in Texas and dosal sprays, At effeetiveconcentrations, both not take the tabletsfor morethan a week.were painful, and when diluteduntil they didnot ·Arecent studyat Memorial Universitybum, theyalsodidnot work,~ . .'. in Newfoundland found preliminary ev-

Adults and youngstersweighing 60 pounds~'~-r~ idence suggesting that long-term use ofmore took twotablets at the outset, thenoeeev- . 300 milligrams of zinc a day-about theery two hours for ~ long as they werea~ same' zinc dose that &by and Halcombbut never more.tbau 12, tablets a clay for the administer~-may have adverse effectsad~ts and ninefor the youngsters, ~or smaller on blood cholesterol and the body's im-children,the.~ge waa halved and9rI tablets a . mune system. Besides, prophylactic use~y wasthe limi~. AU were instructed~,do notb- of zinc-taking it to P1'tWrltthe onset oftng else for thea colds, for the dura~ of f:be colds-has beenfound not to work.studyand to stop treatmententirelysu:bour8 .if- Ebywarns,too, that zinc gluconate canter Symptoms disappeared, .. ...~ .:' causeoral irritation. This is most Ukely to

Because very few.ol,9Ie ~46 partiCipants emo.,' .ha......... if """" £aU asl ith tablet'barked onthe expenment Wlth brand-new colds, ..-.' ~- eep.wt a Inthe resuJts weren't as dramatic as with young your~outh"~so a~Id~-to preventKaren. Still, test subjecta,w~ had,actualJY...~_.. qu~eSS-ls to aveld takin~ the tabletszincglucooate were sfRlPtom.free in an 'average onanern~ stomach andto mbble onsodaof 3.9 days, whileit was typjcaUy 10.8 clays be- crac,kers if yours~omach protests.fore the placebo users were wellagain. Finally, a:ty nne .gluconate you buy

The researchers reported in the journal An. should CC?ntaln 6nly~ glucona,te. SometimicrobiaJ Agents andChemotherapy last year formulatl0~s ~re e~ed WIth e,venthat. no:matter.bo.wdIY.W.Lt!te.~.~.~. ,,'. ~ worse-tasting m~ts, ~uch as liverceiving the zinc typically got better sev'eli dca.&aYthinJ: ,foracokL,sooner than thosewhoreceivedthe placebo. - Judith Randal

"It didn't matter," says Eby, "whether peoplehad badcoldsor mildonesor howlongthey badthemwhenthey entered Our 'study;..they got wellabout seven clays earlier 'thaD they wouldhavenonnally,"

The publication of that first report has. .... brought Eby, its senior author. let.ters

. and inquiriesfrom allover the world. Itbas also brought him a venture capi­

talist of sorts, J.C. Godfrey, an organic chemistassociated with the Center for Concept Devel­opment,a N~w Yorkmarketingresearch firm.

Godfrey has arranged, withthe Foodand DrugAdministration's approval, to have a group ofFlorida physicians repeat the study that Eby.Halcomb and Davis conductedin T..... H thesepbyolcians get similar results, more tbaIl twodozenother studieswill be launched to becertain.that zinc g1uconate is DOt only effective againstcolds, but alsosale,· , .

•Among thethingswe oeedto nail down inorderto get theFDA',u1timatupproval: sal" Godfrey""is what the ideal dooe is and whether there aresomepeople for whom zinc g1uconate maybehaz­ardous. George cbooe the 23-mi11igram dooe arbi­tr8ril1, because tbat is what Kareo bad beee tak­ing, but weroaIIy don't Imow whetber a lllDaIIerdooe wooId workjustu weII 0< • largereeewooIdworkeven better:And,oil yes, there', thematter .ofdncgIuc:ooate', bittertaste," :.. Some people find th1t tastemerely IInpteanm,

but 12 of the 83 T.... wImiteers whotooIr linegIucooate felt siek to their stomadIs and two oftbese aetuaIIy threw up. Godfrey, whohalsenedII allavor c:oasultiDt to mIjor food companies. has<XlIIIe up with..- fonnu!litioas-coe of themsugaNree-tbat make the tablets taste IiIce bardcandy, NonelbeJess,. ij is still WlCe11ain wbetber

__ ..•.• •.• i

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i~iii;:';; line, the Cold-Fighter

"lerendipity Spawns Research That Suggests the Metal Is Nothing to Sneeze At ..

In 1979, Karen Eby,:a~3-year:-old in Austin,Tex., wastakingzinc glucomite as a dietarysupplement because she had leukemiaand-like many leukemic youngsters-was

deficient in zinc.One day,when shewas corningdown witha cold,she refusedto swallow the tab­let andinsistedon lettingit melt in her mouth.

Itwasto changeher father's life.When Karen's sneezes, sniffles and scratchy

throatvanished withinhours,GeorgeEby,an ur­ban planner, couldn'thelp noticing. Hadthe childstumbled onto an important discovery? Or wasthismerelya fluke?

Eby dug into the considerable' scientific -llter­atureon the healing properties of zinc andbroughthis findings to the attention of Dr. Wil·Iiam Halcomb, the family's general practitioner,and nutritional scientist Dr.' DOnald Davis fromthe University ofiexas' Clayton Foundation Bio­chemical Institute in Austin. At first, the threemen used the compcund cn themselves'whenthey had colds aI!d gave it, to relatives andfriends. The results were so consistentlyprom­isingthat when Eby inherited some money, thetrio recruitedsame coldsufferers for a more rig­orouslyscientific trial.

Participants.were volunteers who, withoutknowing which waswhich, tookeither actualzincgluconate tablets or placebos-look-alike dum­my lozenges. Ideally, these human guinea pigswould alsohavebeen tested to be sure 'theywereactually infected with rhilfoviruses:.....,;,the knoWncause of common eolds.;...but,Eby and his col­leaguescouldnot aHord to hire a microbiologistto do the analyses. However, Halcomb examinedthe recruits and disqualified those he suspectedmighthave allergiesor bacterial infections rath­er than bonafidecolds.

the tabletswill retain their apparent effectivenessif theyare alsomade palatable.

M eanwhile,back in Austin, two thingshave happened. One is that Karen

.• Eby,now8, baa recoveredfrom herleukemia. The other is that her fa­

ther has set ap George Eby Research Inc.-anonprofit, tax-exempt public charityto delvefur­ther' into the therapeutic potential of zinc. Ebyhas been notified that his patent of a zincglucc­nate lozenge to shorten the durationof coldswillbe issuedJan. 22. ASsuming the lozenges even­tuallywin FDAapproval, sales will help to fundfurther research.

Still," full FDA approval will probably take atleast three years, andEbyis alreadychamping at ~the bit. U he can get funding, he plansto launch ~studiesthat will pit zincagainstherpesviruses- ~

bothgenitalasd oral-and then to probefurther 0the common metal'salleged ability to detoxify in" Z

sect;stingsandsnake bitesand relievemenstrual ;'3cramps. !!i

Even this taU order will, says Eby, barely i!jscratchthe surfaceof zinc'spotentialsincethere qare alsoreports in the scientific literature of its ~.activityagainstdozens ofother viruses. Zincmay ~

be goOd for boosting the aging immune system ~and for.treating certain types of prostate glandinJIamation. . _

'1 intendto stay in medical research,"he says. !Jl'True, I don't havescientific credentials. Butyou ;edon't have to behighly trainedin medicine to of- tii,ferleadership: •

]uditIJ Randalis thescience correspondent in tJuWas1Jington bureau of theNew Yorir Daily News.i: J1

i~~l

By Judlth·RandalSpe<ial101'be WuhinIloaPool

..... " ......

Each volunteer was given either a seven-daysupply uf 180:miIligramzmc ~Iuconatetablets Th Ri k(each containing ,23 milligrams'of zinc) or an e s Sequivalent nurn~r:of placebos. They were .in-structed to suckon'them for at least 10 minutes Zinc gluconate is available without pre-to bringthe tablets' contents into'di"rect 'Contact scription at some pharmacies and healthwith the tissuesof the throat where rhincviruses.', food stores. But before trying it, talk itreplicate'. (Cold viruses also spawn in theriasal overwithyourdoctor.Then, if youdecidepassages,and Eby, Halcomb and Davishad ,ear- to go ahead, do not exceed the dose Ebylierinformally tried zincnosedrops and zillc na-and,his colleagues used in Texas and dosal sprays. At effective concentrations; both . not take the tabletsfor morethan a week.were painful, and when diluteduntil they didnot 'Arecent-study at Memorial Universityburn, they alsodidnot'9l!,rk.) . .·.· ..':,0," ,.,inNeWfoandiand found preliminary ev-

Adults and youngsters we,ighing 60 pl?'Ml~::~~Bi·.;i~:':":id~nCE;.sUggesting that long-term use ofmore tooktwotablets at theoutset, then!lIle--ev~ ,:.,0.'; 300 niilligrams of zinc a day-about theery two hours f<;J,~~s}ongas·they were-awake, same': zinc dose thatEby and Halcombbut never mo~e, than;l? tablets a day for the administered-may have adverse effectsad~ts and ninefor the youngsters. ~ot:,smaller on blood cholesterol and the body's im-children, the.d~ge was~ved and SIX tablets a, mune system. Besides, prophylactic useday wasthe limi~., All were instructed t~,do noth- ' of zinc~tlking it to prevent the onset ofmg else for their coldsfol"th~ dura~lon of ,t?e colds-c-has beenfound not to work.studyandto stop treatment-entirelyslX.bour~ ~~, Ebywarns,too, that zinc gluconate canter symptoms disappeared, ..:/',,',""., '. ' causeoral irritation. nus is most likely to

Because very few.oqhe~46 partiClpan,tsem~,:: ,~" ;happen if you fall asleep with a tablet inbarkedon the e~nment WIth .brand-~ew colds, yourmouth, Alsoa goodidea-to preventthe resul~s weren t ~s dramatic as With young queasiness-is to avoid taking the tabletsKaren.Still, test sub.iectB:,who,.had;act~Y..,~';,«cr. , ...... ,... _ h d ·hbl h~_zincgluconate were symptom-free m an average onanem~~y stomac an to m eon I!UU<I

of 3.9 days, whileit was typically 10.8 days be- crac.kers if yours~omach protests.fore the placebo users were weU again. , Finally, a~y MC .gluconate you buy

The researchers. reported in the joumal An. should c?ntamonly zm~ glucona.te. Sometimicrobial A~ents ~nd Chemotherapy last year fonnulatlc:.:'s ~re e-?"ched With e.venth~t~ n~~.'bAw.,'~e,'{~~.!!lec~J~r;~~~c ,.r,~ ".,worse-taslmg mredlents, ~uch as liverceiving the ZInC typically got better seven '~that,-won,,~~o,any:tbing;for a ccld... ' \ ,--,soonerthan those whor~ived the placebo., " - Judith Randal

"It didn't matter," says Eby, "whether peoplehad badcoldsormild~~s cr bowlong they hadthemwhentheyenteredoUr 'study;they got wellabout seven days earlier 'than they would havenormally."

The publication of that first .report has. brought Eby, its senior author, let.ters. and inquiries fromallover the world. It

has also brought him a venture capi­talist of sorts, J.C. Godfrey, an organic chemist,associated with the Center for Concept Devel­opment,a NewYorkmarketingresearch firm.

Godfrey has arranged,withthe Foodand DrugAdministration's approval, .to have a group ofFlorida physicians repeat the study tha"t.Eby,Halcomb and Davisconductedin Texas. Ifthesephysicians get sinillar results, more, than_ twodozenother studieswillbe launched to be certainthat zinc gluconate is Jll)~ only effectiveagainstcolds,but alsosafe. . , , ; _.

"Among thethingswe.~ tonaildown inorderto get the FDA'sultimate-approval," saysGcxifrey,.,"is what'the ideal dose is and whether there are­somepeople for whom zinc gluconate maybe haz­ardous. George chose the23-miIligram dose ami­trariIy, because that is What Karenhad been tak~ing, but'we really don't,know whether ~ ,smallerdosewould workjust asweD. or a larger 'one !,auIdworkeven better: And, Db yes,there's~. matter"ofzinc g1ucooate's bitter taste."'". Somepeople find thia taste~y unpleeeent,

but 12 of the 83'Tex.as voluriteeis'who'tOOk zincg1uconate felt sick to their stomachs and two ofthese actually threw up.·Godfrey, who baa servedasa flavor consultant to majorfood companieso hasCome up with severalfomtwations-.:.<w: of·them',sugar-free-that make the tablets taste like hardcandy. Nonetheless" it is'still uncertainwhether

~_~~ ~ I .

any differences he may have withthe administration's trade reor­ganization plan, the pet project ofCommerce Secretary MalcolmBaldrige, whose large depart­ment would take in Brock's spe­cialists.

But according to sources in theadministration and on CapitolHill, . Brock is balking at Bal­drige's efforts to declare the cre­ation of a Department of Inter­national Trade. and Industrya top priority for next year ifPresident Reagan wins reelec­tion.

Baldrige won White Housesupport for the billeven though itwas opposed by many trade andeconomic specialists in the ad-ministration. ' .

1< 1< 1<

ON AND OFF THE FIELD... Staff members from Brock'soffice spend a good deal of theirtime facing their Japanese coun­terparts across the conferencetable. On Tuesday, however,they met at a Hains Point ballfield, where the USTR baseballteam handily defeated a teamfrom the Japanese Embassy, 28to 7.

Brock's officeshould only do aswell in trade negotiations.

-Stuart Auerbsch

.:i<~;,,,,~-~<,";-;-;' ~J.,;:.'i " ....)it>'..........,,,,, ",;, .... ",..·f u.s. NT:: : e R':pr=::L;;';; E:e:-::e ad':~;:trat:n's _''"~w --

William E. Brock still hopes to short list for the trade bill in­get one major trade bill through eludes at least two sticky issues:Congress. this year that will in- the extension of the Generalizedelude a grab bag of proposals he System of Preferences (GSP),considers c~uciaL which gives Third World nations

But his aides and trade experts special tariff status for imports ofon the Hill are concerned that certain products into this coun­any trade measure will b~come a try, and a proposal to grant freeChnstma~ tree hung WIth bau- trade status to IsraeLbles providing trade .relief to the GSP is not popular with a Con­auto, steel,. copper, shoe and gress that faces pressures fromtuna~profcessmg industries, to 'constituents to. restrict imports

. name a ew. h hi' f .It is· possible-though unlike- rat er. t an to et. more oreign

Iy-that the bill will reach the goods In:Yet there seems to be a. Senate floor as early as next recognition that GSP IS impor­-. week, when the legislative cal- tant a~d. should .be continued,

endar is relatively empty. though It IS hkely th~t g~ods fro.mSome congressional trade spe- some of the emerging mdustnal

cialists are pressing the Reagan powers in the Third Worldwillbeadministration to include some removed from the GSP list.provisions of a trade remedy bill, On the surface, the proposal tosponsored by Rep. Sam Gibbons grant free trade status to Israel(D-Fla.), chairman of the House should have clear sailing in Con­Ways and Means subcommittee gress since both Tel Avivand theon trade. administration favor it. But it has

Despite Gibbons' reputation as been attacked in committee hear­a free trader, the bill has been ings by California farm interests,attacked as protectionist for its - who voice fear that their marketsattempts to widen the definition will be taken over by low-pricedof unfair trade practices to In- Israeli produce.elude such things as Mexico's 1< 1< 1<selling of natural gas to domesticindustries at lower prices than TRADE REORGANIZA­the gas it exports to the United TION ... Brock hasplayed theStates. good soldier and kept quiet about

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