Category Archives: Regulation

In the “If Your Like Your Health Care Plan, You Can Keep It” Department…

then-i-saidFrom the Times-Dispatch: “After a year’s reprieve, up to 250,000 Virginians will receive notice by the end of November that their health insurance plans will be canceled because the plans do not comply with the Affordable Care Act and accompanying state law.”

Now those Virginians will have to buy new, Obamacare-compliant plans, which means they will have more benefits they may or may not want… and will cost more.

The Virginia Association of Health Plans, which has become a wholly owned subsidiary of the Obama administration, defended the forced switch. Said Executive Director Doug Gray: “I don’t call that cancellation – I call that an adjustment to the new law.”

I call it a cancellation. I’ll be that the people affected by the law call it a cancellation, too.

– JAB

Richmond’s Tech Star in Kickback Scheme?

HDL LogoBy Peter Galuszka

Critics of the American healthcare system have long cited hidden charges as one reason why costs are so high and why reform is needed.

So, it is disturbing to read a report on the front page of today’s Wall Street Journal that Health Diagnostic Laboratory, arguably the most successful of the biotechnology firms to come out of a much-touted research park in Richmond, is implicated in a possible scheme to pay kickbacks to doctors who use its blood testing services.

The Journal reports:

Until late June, HDL paid $20 per blood sample to most doctors ordering its tests — more than other labs paid. For some physician practices, payments totaled several thousand dollars a week, says a former company employee.

HDL says it stopped those payments after a Special Fraud Alert on June 25 from the Department of Health and Human Services, which warned that such remittances presented “substantial risk of fraud and abuse under the anti-kickback statute.

HDL Chief Executive Tonya Mallory told the Journal that her firm “rejects any assertion” that the company grew as fast as it did “as a result of anything other than proper business practices.”

Meanwhile, HDL has sent Bacon Rebellion this updated response.

Others say that paying doctors fees sets up the chances for fraud, especially in Medicare, one of HDL’s biggest markets, the Journal reports. Other testing firms, the Journal reports, pay doctors nothing for using their services.

This is bad news for what was Richmond’s Poster Child of successful high tech startups after years of flops at the Virginia Biotechnology Research Park. Founded in 2008 under Mallory’s leadership, HDL zipped up to $383 million in revenues with 41 percent of that coming from Medicare,” the Journal says.

Much of the issue seems to be related to how accurately and fairly to define what is merely drawing a patient’s blood and how much goes for “P&H” or processing and handling. A problem is that Medicare doesn’t pay any more than $3 for merely drawing blood. HDL has estimated that the “P&H” part is worth about $17. The firm claims it has special proprietary methods that give it an edge.

According to Virginia Business magazine, which named Mallory its person of the year last year:

Mallory, 48, founded HDL in the summer of 2009. Since then, it has grown from a kitchen-table business plan to a corporation earning more than $420 million in annual revenue, employing 750 people, processing 4,000 lab samples and running more than 60,000 lab tests each day. HDL has driven near constant construction at its home in downtown Richmond’s Virginia BioTechnology Research Park, where a $68.5 million expansion soon will triple the company’s footprint to 280,000 square feet.

Last year Mallory received the Ernst & Young National Entrepreneur of the Year award in the Emerging Company category. One of the country’s most prestigious business awards for entrepreneurs, it recognizes leaders who demonstrate innovation, financial success and personal commitment as they build their businesses.

The Journal, however, quotes several disgruntled employees and notes that Mallory had worked for a California firm called “Berkeley Heart Lab Inc,.” which began using tests called “biomarkers” which can predict future health problems by analyzing blood.

Mallory, who was raised in Hanover County and attended Virginia Commonwealth University, was senior lab-operations manager at Berkeley until she left for Richmond in 2008, the Journal says. Two Berkeley sales executives went with her and formed a company that ended up marketing HDL’s products.
Berkeley sued HDL, accusing it of stealing its business. HDL denied the allegations. HDL settled one case for $7 million, the Journal says, but other cases are pending.

A Better Route

Yeah, GRTC buses have bicycle racks now. But bus companies aren't pursuing disruptive innovation.

Yeah, GRTC buses have bicycle racks now. But bus companies aren’t pursuing disruptive innovation.

by James A. Bacon

The GRTC Transit System, like most municipal bus systems, provides a one-size-fits-all transportation service. Whatever the route, time of day and level of demand, GRTC runs a standard city bus capable of carrying nearly 60 seated and standing passengers along fixed routes. Everyone pays the same fare ($1.50 on local routes), regardless of time or distance traveled. We’ve all seen the big GRTC buses driving around with two or three passengers. We all know that, given the cost of paying a driver and operating a vehicle, many if not most bus routes operate at a loss. It would surprise few to hear that GRTC costs U.S., state and local taxpayers $33 million in subsidies to operate in fiscal year 2014.

Many people justify this significant subsidy on the grounds that buses provide a way for car-less poor people to get to their jobs. What the Richmond metropolitan region needs, they say, is more bus service so poor people can reach a broader range of job opportunities. Environmentalists also favor buses on the ground that they generate less pollution and carbon dioxide emissions than automobiles do. Local government officials in Henrico and Chesterfield counties tend to oppose the expansion of bus routes not on grounds of principle but on grounds of economy. Their argument: We just can’t afford it.

If we count on fiscally strapped local governments to loosen up the purse strings to pay GRTC to open new routes, we’ll be waiting a very long time. Maybe it’s time to start thinking differently: how to expand mass transit without GRTC. A free market in transportation services, I contend, would provide superior service to poor people. It would increase shared ridership and reduce pollution emissions. As a bonus, it would save taxpayers millions of dollars in subsidies.

Yes, mass transit in the United States is that bad. GRTC is reasonably well run by the standards of other government-owned monopoly transit systems. Government-owned monopolies worked adequately for decades when innovation in cars and buses was incremental in nature – installing seatbelts or switching from diesel to natural gas. But the traditional model is hopelessly inadequate when the transportation industry stands on the edge of the most momentous transformation since Henry Ford’s invention of the assembly line.

The information technology-communications revolution is sweeping through transportation, just as it is through consumer electronics, building automation, health care, manufacturing and every other sector of the economy. Thanks to smartphones, it is easier than ever for drivers and passengers to locate one another. Thanks to Big Data analytics, it is easier for transportation-service companies to predict where and when transportation demand will occur and to mobilize assets accordingly. New technology is inspiring new business models that literally no one was thinking about 10 years ago.

The heralds of this new wave are Uber and Lyft, Silicon Valley-funded companies that have started competing with taxicab services in many metropolitan regions across the country. These companies are targeting the high end of the transportation services market, charging premium rates for customers willing to pay for a limousine-like ride at a moment’s notice. Predictably, they are getting pushback here in Virginia from taxicab companies. The regulatory future is uncertain. But whatever happens to Uber and Lyft, the new technology is here to stay. Taxi companies are already adopting it themselves.

Bridj, a Boston-area company, charges $6 per ride in comfortable, Wi-Fi- equipped coaches to travel from suburban locations to downtown Cambridge and Boston. Thousands of riders, it appears, are willing to pay a premium price for a premium service that municipal bus companies can’t match with their one-size-fits-all mind-set. As this new industry continues to innovate, it’s just a matter of time before entrepreneurs use the same technologies to serve lower price points. In a free market, there are few barriers to entry; someone will figure out how to serve poor people and do it cheaper than the transit companies can.

Eventually, someone will devise a smartphone driver-rider matching service open to all comers. Anyone with decent credit and a good driving record will be able to fork out $32,000 for a 12-seat van and start his own jitney service. In developing countries around the world – even in countries where $32,000 is a lot of money – jitney service is affordable to poor city dwellers. Surely in America, where we have some of the richest poor people in the world, someone will figure out how to convey them to major employment centers.

The transportation revolution doesn’t end there. Automobile companies are rethinking the idea that everyone needs to own his or her own car. Some think that the future is transportation-as-a-service. Outside San Diego, Calif., real estate developer Rancho Mission Viejo is partnering with Daimler AG, owner of Mercedes Benz, to roll out a service that provides subscribers access to cars, scooters, buses, shuttle vans and car-pooling, primarily for use in its Ladera and Sendero communities. The aim isn’t to persuade residents to go totally car-free, just to go car-lite. The goal is to cut the cost of mobility – $9,000 yearly to own and operate the average car – in half.

Environmentalists and anti-poverty warriors will continue to pressure Henrico and Chesterfield officials to subsidize the expansion of GRTC into the two counties. Given the paucity of walkable, higher-density neighborhoods in suburban Richmond and the lack of congestion – it’s the least congested of America’s 51 largest metros – the economics for mass transit will always be difficult. Rather than throwing money at an antiquated business model, government officials should encourage the emerging free-market alternatives. Roll out the welcome mat to Uber and Lyft. Ask Bridj to check out our market. Sweep away barriers that prevent jitneys from going into business. Beg Daimler AG to bring its transportation-as-a-service to the Richmond region.

We have a choice: Embrace the transportation past or the transportation future. I’ll take the future.

This column was published originally in Henrico Monthly and Chesterfield Monthly this month.

It’s Oh, So Richmond!

By Peter Galuszka

cantorWhen I looked at my Richmond Times Dispatch, I was stunned. I couldn’t find a story that their wunderkind Congressman, Eric Cantor, the kind of Republican they love, had gotten a big deal job with Moelis & Co., a New York boutique investment bank.

There was the story in the Wall Street Journal and the Washington Post. Finally, the RTD straggled  on with brief piece at 6:22 a.m. on its Website.

Maybe it’s embarrassment. Cantor, the former House Majority Leader, could do no wrong with his Main Street Republican friends or the editors of the local newspaper. His wife, Diana, was on the board when the newspaper was owned by Media General. Then came his stunning defeat in a June primary to unknown David Brat, who ran a mash-up of a Tea Party and Libertarian insurgency.

Moelis says it is hiring Cantor “for his judgment and experience” and ability to open doors, says the Journal. He’ll live in Virginia and have offices in Washington and New York.

Well, that was quick! Or maybe not. Cantor has raised $1.4 million from the financial services sector, as well as lots from managed care. His sense of entitlement is astounding. First, he thought he didn’t have to bother with the home folks in the Seventh District any more, costing him the election. They he arranged (with Gov. Terry McAuliffe’s help) a special election.

Doing so would get his replacement in office faster and thus Virginia can keep its seats on some important committees. But it also frees Cantor to take his plum job.

You didn’t read it in the RTD first! Somethings will never change.

Bob McDonnell’s Big Decision

 smith_mountain_lake2By Peter Galuszka

It was a gubernatorial quandary only Virginia could have .

In the summer of 2011, former Gov. Robert F. McDonnell was ready to take a few days off. He and his family had been going to Smith Mountain Lake, a popular destination near Roanoke with lots of golf courses and seven-figure lakeside homes.

At his corruption trial this week, McDonnell testified that his summer getaway had been bankrolled by Delta Star, a company with a big factory in Lynchburg that makes portable industrial electrical gear. The firm had put him up at one of their lakefront houses for $2,474 in 2010, according the VPAP, which runs a data base about this kind of thing.

Summer 2011 had proved a big problem, however. His wife, Maureen, had become fast friends with Jonnie R. Williams a rich Goochland County businessman. Williams had given Ms. McDonnell a $50,000 check and also paid $15,000 for her daughter’s wedding luncheon that June. She had traveled with Williams helping promote Anatabloc, Williams dietary supplement that has since been pulled off the market by the U.S. Food and Drug Administration.

The problem was — whose million-dollar-plus house would the McDonnells use? Williams very much wanted the McDonnells to stay at his sprawling domicile on the tip of a peninsula. Delta Star wanted the McDonnells to stay at their place.

What to do? They split it. The McDonnells stayed at Williams’ house for a getaway valued at $2,268 value according to VPAP. He also laid on a Ferrari that the governor could enjoy driving on the way home.

Delta Star made sure the family was entertained and fed. They provided the family with their very own boat to cruise the lake and catered meals – a $1,892 value for a long weekend.

Delta Star’s feelings didn’t seem to be hurt since they laid on another entertainment gift worth $10,182 in 2012.

And while we’re talking lakeside homes, guess who else also stayed at Williams’ place? Former Atty. Gen. Kenneth Cuccinelli, that’s who – to the tune of $3,000 in 2011. We haven’t heard much recently from the former firebrand, hard right politician but he is on the witness list.

And so it goes. And, by the way, getting vacation favors is very common. Check out former Gov. Tim Kaine’s expensive sojourn on the turquoise blue waters of the Caribbean Sea.

It’s not the only way Virginia’s extremely lax ethics laws work.

If you use your PAC, you have an automatic teller machine. For instance, Tim Hugo of Fairfax, the third-ranking Republican in Virginia’s House of Delegates, expensed nearly $30,000 for travel and food and $9,400 for his cellphone over an 18-month period. As a spokeswoman for the State Board of Elections told The Washington Post’s Laura Vozzella in 2013, “If they wanted to use the money to send their kids to college, they could probably do that.”

Innovative Virginia

Innovative State, 2014, by Aneesh Chopra; used with permission of the publisher, Grove/Atlantic, Inc.

Innovative State, 2014, by Aneesh Chopra; used with permission of the publisher, Grove/Atlantic, Inc.

In his new book, “Innovative State: How New Technologies Can Transform Government,” Aneesh Chopra makes the case for using technology to transform government in the United States. Weary of the old liberal-conservative debate of more government/less government, Chopra espouses effective government. In this book, he comes across as conservative in his frank acknowledgment that government often falls short in the execution of its goals. But the former Virginia Secretary of Technology and former Chief Technology Office for the Obama administration remains steadfastly liberal in his conviction that government can be a force for good.

While I hew to the view that less is more when it comes to government, I concede that certain core functions in American society are best provided by government. I believe that what government chooses to do, it should do well. And, like Chopra, I believe that technology can play a major role in improving government performance. That’s why I’m excited to make available to readers of Bacon’s Rebellion Chapter 3 of his book, which describes his experience as Secretary of Technology during the Kaine administration. I expect that readers will be impressed by Chopra’s approach as a pragmatic problem solver and encouraged how often, away from the spotlight, Virginia politicians are willing to cooperate on a non-partisan basis to get things done.

After resigning his job as CTO for the federal government (you’ll have to buy the book to find out what he did in that post), Chopra made an unsuccessful bid for the Democratic Party nomination as Lieutenant Governor. But he remains active in Virginia, as co-founder of Hunch Analytics, based in Rosslyn, which applies Big Data and Predictive Analytics to solve problems in education, energy and health care, and working behind the scenes with Governor Terry McAuliffe on workforce development and veterans affairs. I expect we’ll be hearing more from Chopra who, at 42, has a long career ahead of him. — JAB

Chopra

Aneesh Chopra

Chapter 3
The Virginia Model

Back in 1999, the Virginia legislature was seeking to make someone accountable for nurturing entirely new industries throughout the state, while making sure the government’s internal use of information technology was effective and efficient. Virginia became the first state in the nation to create a cabinet position for a Secretary of Technology. Three men would fill that role over the next six years, and their work over that time contributed to Governing magazine’s 2005 selection of Virginia as the “Best Managed State.”

In 2006, Tim Kaine, the successor to outgoing Governor Mark Warner, chose me to the the fourth Secretary of Technology. He had a different spin on the position, one in tune with the times. By 2006, the Internet had transformed the way consumers accessed information and conducted commerce. yet, though it had improved some services such as e-filing tax returns and renewing professional licenses, it had not meaningfully transformed the relationship between citizens and their government. Kaine assigned me to prioritize the improvement of that interface. I realized that one of the most important things government can do is remove restrictions that exist for really no good reason. On a visit to Google, for example, I learned two things: one, most people get to government websites through search engines, not by typing in their URLs, or bookmarking them; and second, government, perhaps unintentionally, made it difficult for search engines to index information that the public had the right to know. Within 90 days, we initiated a no-cost collaboration to simplify and standardize the interface between search engines and government websites, making it easier for the public to find what they need. We formed a coalition of four states, two led by Republican governors (Utah, California) and two by Democratic ones (Arizona, Virginia), whereby Google, Yahoo and Ask.com agreed on a standard sitemap protocol that the states agreed to adopt. Those states then assigned their webmasters to implement the new protocol, a task that took about an hour per site. By the launch in April 2007, Virginia had tagged about 80,000 of our own web pages (URLs) for addition to the participating search engines. In the first year of the initiatives, we observed a 40 percent spike in site visitors, at no cost other than the modest incremental staff effort.

One of the promising aspects of that initiative was its bipartisan backing. Before my term even started, and as it progressed, I made a point to reach out to members of the Republican-led legislature. Through those conversations, I became convinced that many in both parties viewed technology, data, and innovation initiatives from a more pragmatic prism, beyond the usual, inflexible left-right division. That was evident when those Republicans invited me, a Democrat, to partner as a nonvoting participant on the Joint Committee of Technology and Science (JCOTS), which organized small working groups that included members of the executive and legislative branches, as well as concerned citizens. More than a dozen bills endorsed by JCOTS passed through the legislature with overwhelming bipartisan support and were signed into law by Governor Kaine, including Republican-sponsored legislation to expand rural broadband access, adopt health IT standards, and permit school boards to purchase open source education resources.

Democrats, while a minority in the legislature, also attempted to put their signature on the smarter government movement, with the endorsement of the executive branch. Consider the way Business One Stop came together. Governor Kaine, wanting to buoy the state’s reputation as business friendly, sought to offer every Virginia entrepreneur a single destination to complete all the forms required to start a new enterprise — a task that otherwise might involved as many as seven state agencies, such as the State Corporation Commission, the Virginia Department of Taxation, and the Virginia Employment Commission. Governor Kaine, inspired by South Carolina’s presentation at a National Governors Association meeting, gave me the assignment of creating something similar.

Upon digging in, our team estimated that implementing the South Carolina model — which not only improved the user experience but also connected with existing systems within each impacted agency — would require an investment of roughly $7 million. That estimate far exceeded our available funds. So I improvised… Continue reading.

Wild Ride

uber_poolby James A. Bacon

Last week Governor Terry McAuliffe gave the Uber and Lyft ride-sharing services provisional permission to operate in Virginia as long as they comply with minimal standards for hiring drivers. Uber entered the Richmond marketplace around the same time, putting six cars on the road. Rates are competitive with those of local taxicabs but Uber offers the advantage of more timely pick-ups.

While taxicab companies are a political nuisance, using the regulatory apparatus in state after to state to block Uber from the market, the company’s toughest competitor is Lyft, according to a Wall Street Journal piece describing the relationship between the two San Francisco companies as “Tech’s Fiercest Rivalry.” Competition in the business of shared ridership, which includes other start-ups such as Sidecar, is intense. Companies are testing new innovations every day. Some ideas catch on, others fall by the wayside, but the business is evolving rapidly.

The latest permutation, rolled out by the two companies independently on the very same day, is carpooling. Lyft Line and Uber Pool let passengers ride with strangers and split the bill. While the innovation might reduce revenues temporarily, both companies are betting that they can more than offset the loss by growing the size of the shared-rider market.

This is entirely consistent with what I have long predicted: Shared ridership companies will continue to push their innovations “down market” — to less affluent customers — in order to build a larger customer base. Uber started as a company that provided luxury car rides at premium prices. Then it introduced UberX, which provides taxicab-comparable rides. Now it is moving into carpooling. A future next step — and if Uber doesn’t do it, someone else will — will be to introduce a jitney-like van service that provides rides along high-traffic transportation corridors at rates and schedules that are more than competitive with buses.

Hat’s off to the McAuliffe administration for fostering transportation innovation in Virginia rather than stifling it. Stick to your guns. If you think the taxicab companies can raise political hell, just wait until municipal transit companies start complaining that Uber or Uber-like companies are “skimming the cream” of their customer base. This ride ain’t over by a long shot.

State Workers: GiftGate’s Unsung Heroes

mcD.pixBy Peter Galuszka

The McDonnell corruption trial, now going into its third week, is an enormously sad and tawdry affair bringing shame on the defendants and the prosecution’s key witness, businessman Jonnie R. Williams Sr.

Yet there are heroes — state employees. A number of them have testified over the past week that they sensed that something stunk with the way Williams, who has no formal science training, relentlessly pushed his questionable product and maneuvered to get the state’s prestigious universities to put their imprimatur on it so it could move from being a low margin neutraceutical to a real and profitable pharmaceutical.

“Perhaps the only gratifying aspect of the trial last week was the extraordinary professionalism of the Virginia bureaucracy,” Richmond political analyst Bob Holsworth told the Richmond Times-Dispatch.

He’s spot on. One reads so many attacks on government workers among more conservative writers who see public workers as slow-minded except when it comes to tying business up with regulations — the theory goes. Private workers build wealth and create products. Public workers live off the taxpayer’s dime and should be fired in droves, one theory goes.

Not true in the McDonnells’ case. Tae Health and Human Resources Secretary William Hazel. Former Gov. Bob McDonnell pushed him, including with late night-emails, to set up meetings to promote Williams and his Anatabloc product.

Hazel responded with not only brave professionalism but common sense. “I wouldn’t put the stuff in my mouth,” he testified. When Williams gave him samples, he didn’t put it down in his disclosure forms because “I didn’t think it had any value.”

Hazel is a serious doctor of medicine, honed by science and reason. Someone like that just isn’t going to be swayed by a business hustler with a private jet, Ferrari, various vacation homes and a gigantic credit limits on his cards.

Other heroes and heroines appear to be some of McDonnell’s staff such as Sarah Scarbrough, former director of the Executive Mansion, who worried about Maureen McDonnell’s “mental capacity” and campaign manager Phil Cox who was upset when Ms. McDonnell pushed Williams’ little pills on Ann Romney, the wife of the GOP’s 2012 presidential candidate.

Somewhat less impressive are other witnesses from Star Scientific, Williams’ former company. Former Chairman Paul Perito claimed that he had no idea just what Williams had given the McDonnells and how deeply he had gotten into  the muck with them.

Last summer, I was spending a lot of time reporting on Star and admit that I could never figure it out. Williams’ seemed like money-losing huckster — someone so over-the-top that he could be easily seen through. Yet the other officers and directors at Star, like Harvard-trained Perito, seemed solid.

Perito nixed McDonnell’s campaign to become a paid board member of Star (she’s hardly qualified) and he seemed stunned when Williams’ told him in 2013 that he’d been interviewed by the FBI and state police. It raises questions about Perito that he didn’t know of all of this much sooner.

Still, many Virginia workers caught up in this farcical mess deserve credit for sticking to their guns and professionalism. Hats off to them.

Confessions of the Tic-Tac Man

Jonnie WilliamsBy Peter Galuszka

On afternoon last week, I was leaving the seventh floor courtroom at U.S. District Court  after Judge James Spencer called for a break. Jonnie R. Williams Sr., the prosecution’s star witness against former Gov. and Ms. McDonnell, had been on the stand for hours, playing various roles as remorseful solicitor, confident businessman, and obstructionist witness.

It just so happened that Williams and I were going to cross paths in the crowded outchamber of the courtroom. Without missing a beat, Williams stopped walking, made eye contact with me, and graciously held out his arm to signal that I should pass first.

I have no idea if Williams knew who I am, but the summer before, I had tried repeatedly to interview him for a serious of reports I was writing about Star Scientific, the tobacco company turned dietary supplement that is at the core of the trial against the McDonnells in perhaps the most important ever corruption trial in Virginia history.

Williams, 58, had been on the stand for four days, dressed as always in a shiny, expensive suit, his thinning hair coiffed around a high, bulbous forehead.

He has a strange voice, soft and proper, that sounds at times like an elder Marlon Brando or, without the harshness, Strother Martin, the man who played the cruel prison warden in the Paul Newman movie “Cool Hand Luke.” Either way, Williams does have a remarkable presence and he always seems to be selling, selling, selling something — either Anatabloc, his product that he claimed could do anything from cure Alzheimer’s to MS, or simply to promote  his own persona.

Williams, who has extensive immunity from the government, keeps underlining that his deal that could keep him out of jail, which means he must be honest. Honest means making “mea culpas.” They must sound sincere. When he said he pressured Maureen to get Bob to call his aging father on his 80th birthday, he recalled:  “That cost me hundreds of thousands of dollars to be able to do that,” he said. “The McDonnells were not my personal friends. It was good for my company,” noted Williams, who gave them more than $150,000 in gifts, loans, trips and cash.

That’s one version of Jonnie — pensive, regretful, honest. There was another one as well that came out when defense lawyer William Burck asked him to talk about his background in business. It was ego bait that Williams couldn’t resist.

It all came out — the confident kid from Fredericksburg who went to a little known business college in Rhode Island and came home to sell used cars and then took over a faltering eyeglass shop, learning how to pick up on one entrepreneurial idea and spin it into another.

Name dropping is a critical part of the Williams psyche, showing how impressed Williams was that his keen intellect had attracted helpful personalities far beyond his social kin. He keeps mentioning Johns Hopkins University Medical School and the “very bright” Dr. Frank O’Donnell who somehow came down from Baltimore and met Williams when he was working in the optical business. O’Donnell was a big league ophthalmologist, Williams said, and served as his mentor, even when he moved to the Midwest. Dr. O’Donnell came in with one business deal after another. One helped lead him to making machinery to cure near-sightedness, earning him millions and securing his personal finances.

Perking up during testimony, Williams ticked off medical terms as if he were the head of a medical school department. He also had developed a keen sense of what could and could not be said in good company, sort of like a small town boy of modest background who’s being let into the local country club for the first time.

When he took the McDonnells and a few others to La Grotta, an expensive Italian restaurant in downtown meeting after an Anatabloc session, he picked thousands of dollars’ worth of wine and informed the courtroom and jury that it was bad form to let your guests know if it’s $50 a bottle vintage of $500 a bottle. Of course, when he picked out the Louis XIII cognac for his male model friend, the McDonnells and some of their staff at a New York eatery in 2009, he was proud to reveal it cost $5,000.

“I really didn’t like it all that much but some people do,” he said. He also didn’t really like the Ferrari that he made a big effort to drive to Smith Mountain Lake in July 2011 so McDonnell could drive it at Maureen’s request while vacationing for free at Williams waterfront house. Williams says he prefers his Toyota Camry.

This same snobbery constantly extends to the medical and business hot shots who were helping build the idea that Williams’ use of anatabine, a substance found in tobacco, had remarkable curative powers. Jonnie was more than willing to tell you all about it, over and over, in his slow, calm, methodical voice.

Maureen McDonnell, who is being set up as the Fall Girl by her own lawyers, bought into the Williams’ spiel, big time. McDonnell’s professional staff, including Phil Cox and Jasen Eige, testified that they were deeply worried about Williams and kept on telling the governor to limit his engagement.

Smitten by Williams, Maureen kept pushing Jonnie and his miracle supplements, somehow overlooking the fact that there hadn’t been clinical trials on it and that Star Scientific had lost $230 million over the past decade (she still bought stock anyway despite Williams testimony that he told her it was a bad idea).

Rank and file Virginia researchers, whose imprimatur Williams so badly wanted, also were suspicious. When he’d show up pushing pills as samples, they called him the “Tic Tac Man.”

The One Graph that Answers the Central Economic Issues of Our Time

Credit: Brookings Institution

Credit: Brookings Institution, (Click for larger image.)

by James A. Bacon

If you want to understand the intertwined phenomena of lackluster economic growth, persistent unemployment, stagnant wages and the income gap, I present to you the Rosetta Stone, a graph that explains all. It comes from a new paper written by Ian Hathaway and Robert Litan and published by the Brookings Institution: “The Other Aging of America: The Increasing Dominance of Older Firms.” The graph charts the long-term decline in entrepreneurship, as measured by firm formation, in the American economy. Firm formation traditionally has been one of the great strengths of the American economy but as can be seen above, the spread between firm creation and firm death has been narrowing since 1978 when the data series originated. Then in the mid-2000s, the two lines crossed. In the Great Recession and its aftermath, more firms expired than were born.

A decline in business formation is directly responsible for the weakness of the job market. The weakness of the job market is directly responsible for wage stagnation. And wage stagnation, which affects the 99% who depend upon wages/salaries for the livelihood far more than it does the 1% whose income comes from returns on capital, is directly responsible for the increasing income gap.

Credit: Brookings Institution

Credit: Brookings Institution. (Click for larger image.)

What accounts for the decline in entrepreneurship? Hathaway and Litan present data to help understand that question: Older, established companies are becoming more dominant in the economy. That trend can be seen at right. Write the authors:

There is a secular increase in the share of firms aged 16 or more years, while simultaneously there have been steady declines in the share of firms at every other age category during the history of our data,” the authors write. … Perhaps more surprising is the sheer pervasiveness of this trend, which is occurring in every U.S. state and nearly every metropolitan area, across all firm size categories and broad industrial segments; even in high-tech.

This trend, the authors argue, is a worrisome thing. “An economy that is saturated with older firms is one that is likely to be less flexible, and potentially less productive and less innovative than an economy with a higher percentage of new and young firms.”

In searching for  explanations for this trend, Hathaway and Litan explore the possibility that technology-related economies of scale are driving a consolidation. Could the rise of Walmart and other superstores, for instance, account for the demise of mom-and-pop retailers, and could that that trend apply to all industries? Just the opposite, they find: “While economy activity is shifting into mature firms generally, it is the smaller firms where the most growth is occurring.”

The authors are at a loss to explain the trend, which is long-term in nature, transcending business booms and busts. Let me advance a hypothesis. There is a direct correlation between the size and scope of government and the rate of entrepreneurship. The greater the share of national resources controlled, regulated or otherwise captured by government, the lower the rate of new business formation.

In my book “Boomergeddon,” published in 2010, I suggested that the long-term growth prospects for the United States were poor, citing a number of reasons, including greater resource scarcity, loss of  fiscal flexibility due to the massive size of the national debt, and the rise of the rent-seeker economy, the phenomenon in which corporations utilize the coercive power of the state to advance their narrow economic interests at the expense of the public good. As I wrote then:

It is an iron rule of political economy: Dominant industries will utilize their wealth and power to influence the political and regulatory arenas to protect their dominance. They will manipulate the regulatory process to favor themselves over smaller, nimbler competitors. They will see subsidies under the guise of saving jobs or advancing the public interest. They will raise tariffs and other trade barriers to limit competition from overseas. Corporations that maximize profits through rent-seeking are less likely to invest in productivity and innovation, the only true sources of economic progress. By gaining preferential access to capital, they will starve the entrepreneurial sector of the economy — as is occurring in the current business cycle. Rent-seeking companies will be more stable, but they will be less dynamic, economic growth will be slower, the tax base will be smaller, and deficits will be bigger.

The influence of the federal government over the economy has increased without let-up since the mid-1960s. There was a brief roll-back in the early 1980s, coinciding with the Carter-era transportation deregulation and Reagan small-government revolution and with a momentary resurgence in business creation. Then, as the federal government piled layer upon layer of regulation on the economy, the rate of business formation continued to falter, culminating with the Great Recession (not president Obama’s fault) and the imposition of an unprecedented regulatory burden (very much his fault). State and local government power has followed a parallel path in the arena of zoning and land use.

I’m not saying that all regulations are bad. Broadly speaking, environmental regulation is desirable and necessary (although subject to overkill in specific instances). But most regulatory initiatives have imposed huge costs on the economy overall, not only in complying with administrative requirements but in the rent-seeking it inspires. The longer and better established a firm becomes, the less likely it is to be concerned about survival and the more more time and resources it can devote to winning subsidies, tweaking regulations and creating barriers to new firms seeking to enter its industry.