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Saturday, June 25, 2011

E.U. State Rights Racism?

Thousands of Romania’s Roma people (also known as Gypsies) headed for the wealthier Western E.U. states, setting off a clash within the European Union over just how open its “open borders” really are. Migration within the 27 states of the E.U. became a combustible issue during the economic downturn. The Union’s expansion that brought in the relatively poor states of Romania and Bulgaria in 2007 renewed concern that the poor, traveling far from home in search of work, would become a burden on the state governments of the wealthier states. The migration of the Roma also raised questions about the obligations of Romania and Bulgaria to fulfill promises their governments had made when they joined the Union. Romania, for instance, mapped out a strategy for helping the Roma, but financed little of it.

Nicolas Sarkozy of the state of France demanded that the Romanian state government do more to aid the Roma at home. He vowed to keep dismantling immigrant camps and angrily rejected complaints from E.U. Commission officials that the French authorities were illegally singling out Roma for deportation.

                                The Roma in the state of France                         Nikolay Doychinov, NYT

Sarkozy, being oriented to state politics, tried to revive his support on the political right by deporting thousands of them, offering 300 euros, about $392, to those who go home voluntarily, and bulldozing their encampments. The European Commission threatened legal action against the state of France over the deportation, calling it disgraceful and illegal. Perhaps it could also be called racist. If so, might Sarkozy’s action be comparable to a Southern state in the U.S. trying to kick black people out. That is, might Sarkozy’s action evince state rights perpetrating racism? Arizona’s immigration law requiring people being investigated by the police to show I.D. pales in comparison.  Might the association of state rights and racism have shifted from the U.S. to the E.U.? If so, it is doubtful that state rights would be marginalized in the E.U. as it has been in the U.S. on account of the association; the state governments in the E.U. enjoy more than enough loyalty by their citizens to defeat it.

More generally, this case illustrates the problems that the E.U. has had in enforcing compliance of the terms of the accession talks of new states. Prime facie, the case showcases the difficulty involved in integrating Europe, particularly as states such as Italy, Spain, France and Denmark strive to keep out immigrants from Africa. The case of the Roma could be just the tip of the iceberg in how state rights may be fueled by racism to keep certain groups out. In other words, there could be a rather troubling pattern here, and Europeans may be torn—looking to the E.U. to thwart the racism while supporting their state governments in keeping out “troubling” groups. It is part and parcel of the checks and balances in modern federalism that member governments can be called on their sordid policies even when they are popular within the particular states.

Click to add a question or comment on the Roma in the E.U.

Source:

Suzanne Daley, “Roma, on Move, Test Europe’s ‘Open Borders’,” The New York Times, September 16, 2010.

The European Union: Dissolution or Consolidation?

In its 1993 Maastricht decision, the German Constitutional Court ruled that national authorities are not bound to respect and apply Community law to the extent that it exceeds the outer boundaries of Germany’s transfer of sovereignty to the E.U.  The Court also ruled that no transfer of sovereignty is valid to the extent that it results in a violation of the fundamental individual rights guaranteed in the German Constitution.  Nevertheless, the Court’s latest ruling on this subject indicates a willingness to rely on the European Court of Justice (ECJ) for the vindication of those fundamental rights.

The full essay is at "Is the E.U. a Federal System?"

Friday, June 24, 2011

Managerial Society: Carrots & Sticks

In a society of managerialism, a particular value-set is salient; it can be characterized overtly or tacitly by technique as a functional means of manipulating resources (human or material). This orientation issues in an instrumentalism wherein even other human beings are viewed as means rather than as ends in themselves. Furthermore, an assumption of incrementalism rather than real change tends to accompany the orientation because the status quo is the default where the focus is on instruments. The managerial orientation can be so engrained in generally accepted “organization speak” that the modern herd hardly recognizes the penetration in modern society itself.

In the film, The Matrix, Neo is eventually able to see the matrix for what it is: series of green ones and zeros scrolling up or down.  It is only then that he has power to punch through it with complete impunity.  Likewise, it is only when a person sees the allurements and arrows in a company’s customer service that a customer can transcend the vacuous business-speak and thus be able to resist the attempted manipulation.  Rational nature, according to Kant, views itself as an end in itself. Therefore, a natural tension exists between a manipulator and the object, which views itself as an end rather than a means to another’s end. Coming to perceive the attempted manipulation naturally triggers resentment, for it is presumptuous to use another person without any recognition of the other’s inherent nature that intrinsically resists being used. 

For example, an employee representing an organization typically presumes that the potential customer is already under the organization’s policies and procedures.  It is hardly imaginable that a potential customer would use phrases such as “you have to” before any transaction has been agreed to. Furthermore, employees who refuse to deign themselves to negotiate with potential customers presume that the default lies on their side; organizational “policy” or rigidity is merely back up to the operative point that negotiating would be humiliating in that the being of the potential customer would have to be recognized at least in part as an end in itself of equal value to the employee’s company of rational natures.

In other words, modern society, at least in the West, has come to accept the presumptuousness that has come to characterize the attitude of employees who view their role as holding policy up to customers who must either accept it or go away. Policy serves here as a technique by which to dominate. It is used because the organizational herd animal wants to dominate but knows that it is too weak to do so without the aid of policy taken as law. Rather than negotiating with customers, they are told “you must” or “you can’t” even before they agree to a transaction.

Policy is used as a stick instrument. Managerialism also makes use of carrots, or inducements. “You don’t like the product you have purchased?  You can’t return it (policy as domination) but here is a coupon for 10% off your next purchase.” For the other end of a conversation to consist of only carrots and sticks is naturally to be disconcerting, even maddening because the subtext is a refusal to recognize the other as an end in itself. In fact, there is evidence that the carrots and sticks of managerialism have a rather narrow application with human beings. Therefore, much of the effort by people in organizations to induce or threaten may be in vain. 

According to CNN, “In laboratory experiments and field studies, a band of psychologists, sociologists and economists have found that many carrot-and-stick motivators — the elements around which we build most of our businesses and many of our schools — can be effective, but that they work in only a surprisingly narrow band of circumstances. For enduring motivation, the science shows, a different approach is more effective. This approach draws not on our biological drive or our reward-and-punishment drive, but on what we might think of as our third drive: Our innate need to direct our own lives, to learn and create new things, and to do better by ourselves and our world. In particular, high performance — especially for the complex, conceptual tasks we’re increasingly doing on the job— depends far more on intrinsic motivators than on extrinsic ones.” This third drive is that which stems from our rational nature viewing itself as an end in itself (i.e., having absolute value, because rational nature assigns value to things).

So organizational employees and their task-masters may well be selling their fellow human beings short in presuming that they must be buffeted with inducements and threats from the get-go.  Perhaps these organizational creatures are of the lower sort that function only by being manipulated and threatened.  Perhaps they project their own self-centeredness out onto ordinary, free, human beings.

The third drive can lead a potential or actual customer to say, “I am not in your organization so I am not subject to it as you are,” or even more directly, “I do not appreciate being manipulated” or “I feel insulted by being pressured to buy something else as I’m leaving your store after buying one of your products.”  Typically, the employee will feign ignorance of what he or she has been doing, or simply ignore the demurs of the dissatisfied customer. We moderns are bombarded every day with organizational passive-aggression via “organization-speak” consisting of carrots and sticks. We are so used to it in our organizational society that we absorb it without realizing what it is and how it affects us as human beings.

Click to add a question or comment on the subtext of managerialism in an organizational society.

Source:

Daniel H. Pink, “Big Bonuses Don’t Mean Big Results,” CNN, March 2, 2010.

Academically, this essay is intended as an application of Kant and Nietzsche to the phenomenon of organizational society characterized by managerialism.

A Professional Misnomer: Self-Proclaimed Professionals

By the turn of the twenty-first century, "professional" had become a cherished word in the American lexicon. Evincing the Lake Wobegon effect—the tendency of most people to describe themselves or their abilities as above average—nearly everyone is wont to say, “I am a professional.” On housing listings on Craigslist, for example, people routinely use the word to signify that they are not students. In fact, even some students characterize themselves as professionals (though not as professional students!). Such common usage belies the term's claim to having a specific meaning. Moreover, the tendency of non-professions to deem themselves as professions nonetheless may evince one of the downsides of democracy—namely, its proclivity to excess in terms of self-entitlement. This is particularly likely to ensue from a citizenry that is lacking in self-discipline, virtue and knowledge.

I contend that the self-appellation of “professional” is in actuality an attempt at inclusion in what was hitherto known as “the professional class.” Nietzsche’s thesis is relevant regarding the instinct of certain herd animals to dominate as if they were strong—even though they are in fact weak.

It is as though a manager at Walmart imagines a concept of egalitarianism wherein he is akin to a lawyer or surgeon—perhaps based on the fact that the manager distinguishes himself somehow from his subordinate “employees.”  Even in the midst of such self-vaunting, a knowledge of store policies and years of practice in dealing with customer complaints do not constitute an equivalent to the knowledge of law or medicine required of a lawyer and physician, respectively. Nor is there an obligation to the public such as in entailed in the practice of law or medicine.

Technically, the term "professional" applies to “the professions.”  This does not mean “any profession” in the sense of “any job category.” Because a professional relies on years of study, albeit undergraduate (meaning only one degree in a discipline/school of knowledge), in his or her practice, he or she must be allowed significant autonomy. Hence the partnership arrangement, wherein the self-discipline of peerage rather than a boss is relied on, is the typical business form for law firms, CPA firms, and medical offices. Managers in business are not professionals. This can be seen both from the standpoint of the relative salience of a responsibility to the client/customer and of judgment.


According to Relson (p. 750), “the basic social role of the physician . . . is to be an agent and trustee for the patient. Physicians are ethically bound to place the medical care needs of their patients before their own financial interests – an obligation that clearly sets the practice of medicine apart from business.” One could add a lawyer's ethical obligation to act in the interest of the client and the CPA's obligation to act in the interest of the public (people who rely on the financial statements). In business by contrast, "buyer beware" is often the default; a business practioner serves a customer for monetary gain.

Similarly, the judgment of a lawyer, physician or CPA is not easily second-guessed by people outside of the respective profession. Even in a hospital, a physician is not reviewed by a manager who is not also a physician. In contrast, non-managerial board directors commonly review the performance of managers.

Put another way, whereas one can manage a business without having attended business school, I do not think any of us would agree to be seen by a physician who had not graduated from a medical school. Nor would a defendant in a criminal case be likely to chance a conviction (and decades in prison) by hiring a lawyer who had not studied law. Creditors and investors would think twice about the unqualified opinion of a CPA firm whose auditors had not passed the CPA exam after years of study of accounting.  That a certified public accountant might also engage in consulting, however, does not mean that consultants are thereby also professionals. Even were consultants to devise a certifying exam, it would not be as substantive or relied on as the lawyer bar exam, medical boards, and the CPA exam.

According to John Boatright (2008), the "work of most financial services providers does not meet the standard criteria for a profession. Among the criteria for a profession which are lacking in financial services are a high degree of organization and self-regulation, a code of ethics, and a commitment to public service. These criteria are possibly met by financial planners and insurance underwriters, but not by brokers, bankers, traders . . ., who, in the strict sense of the term, are not professionals." Financial planners and insurance underwriters come up short, however, in terms of educational requirements.

According to Boatright (1992), a professional’s stock in trade is a body of specialized knowledge that is the basis for making judgments. Not only is the reliance placed on a professional’s judgment relatively important; professionals are paid primarily for the value of their knowledge that is the basis for their judgments. Accordingly, it is difficult, if not impossible, anyone other than their peers to evaluate their practice.  In fact, Jean Van Houtte (p. 207) refers to professionals as “individuals who practice their occupation autonomously.” Even another surgeon is limited in being able to second-guess a colleague without being in the operating room at the time. The salient element of judgment includes discretion that is difficult for even colleagues to evaluate (though not impossible); obvious lapses, for example, can easily be discerned by a professional’s peers.

In short, the term "professional" has a specific and limited meaning centered on the responsibility-autonomy that is entailed when specialized-knowledge-informed-judgment is salient in the practice of an occupation. The term does not apply to anyone who does something for a living (as opposed to being an avocation).  If it did, then even prostitutes and politicians would be professionals.  The term “professional politician” connotes ignorance, for which political office is not a job?  It is not like one can be governor of Alaska as a hobby. Also, neither "mature" nor "responsible” is interchangeable with “professional.” Nor does the term mean “acting impersonally or bureaucratically rather than emotionally.” It is no accident that people not in one of the professions use notably wide criteria.

Until the last few decades of the twentieth century, the term "professional" did not suffer from such lack of clarity. For example, Joe Flom, who was instrumental as a lawyer in the hostle take-over bubble that began in the 1970s, claimed that his parents wanted him to be a "professional." He wrote that for them, "being a professional was a great thing. . . . That meant either a doctor or a lawyer." This was the popular application: medicine or law--not a manager or sales person, or even a CEO. Then a sort of inflation set in, and the value associated with being a “professional” has diminished in proportion. The presumption that simply getting hired or being mature on the job makes a person a professional is odious and false. In fact, the over-reach itself evinces an underlying sordid character. Ironically, such a person is in need of more supervision, rather than warranting any sort of autonomy.
Click to add a question or comment on the self-proclaimed  “professionals.”

Sources:

Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knoff, 2011).

John R. Boatright, “Conflict of Interest: An Agency Analysis.” Pp. 187-203 in Ethics and Agency Theory: An Introduction, Norman E. Bowie and R. Edward Freeman, eds. (Oxford: Oxford University Press, 1992).

John R. Boatright, Ethics in Finance (Oxford: Blackwell, 2008).

Arnold S. Relman, “Dealing with Conflicts of Interest,” New England Journal of Medicine 313 (1985): 749-51.




Jean Van Houtte, “Research Report: Conflicts of Interest in Law Firms in Belgium,” Legal Ethics 12 (part II): 207-28.

The European Council: Head of State of the E.U.

Concerning the European Council and the Council of the E.U., it can reasonably be asked whether such similar nomenclature is really necessary. It can be quite confusing. For example, I didn't realize that the European Council does not legislate; I had assumed that the Council of Ministers (a.k.a. the Council of the E.U.) handled the technical aspects of E.U. legislation while the European Council votes on broad and highly significant legislation.  Instead, the European Council "sets the EU's goals and the course for achieving them. It provides the impetus for the EU's main policy initiatives and resolves issues that cannot be settled at the ministerial level. It does not legislate." In contrast, the Council of the EU (aka the Council of Ministers) "adopts EU laws, a responsibility it shares with the European Parliament in most policy areas."  The Council of the E.U. also "concludes international agreements between the EU and other countries . . . ; plays a key role in the development of the EU's Common Foreign and Security Policy (CFSP), based on guidelines set by the European Council." It is the Council of the E.U., rather than the European Council, that corresponds to the U.S. Senate. Beyond both bodies representing state governments, the unique foreign policy role is shared by both “upper chambers.” An implication is that cabinet secretaries in the American state governments could replace U.S. Senators (and, conversely, the people of the European states could elect delegates or senators to represent their states in the Council of the E.U.).  In my view, the use of state cabinet secretaries (and having the governor’s association set the U.S. agenda) would be an improvement on senators (and the U.S. President in setting the Union’s agenda).  Such a change would reinvigorate American federalism against continued consolidation.

The full essay is at "Is the E.U. a Federal System?"

Thursday, June 23, 2011

On the Belgium Stalemate: The E.U. to the Rescue?

On June 22, 2011, Philip Claeys, a representative in the E.U. Parliament, once again repeated his demand for Flemish independence, calling for the "orderly break-up" of Belgium. His call came as Belgium was entering its second year without a viable state government. It is no wonder, therefore, that a E.U. legislator would get involved. Repeated attempts had been made in Belgium during the previous year to resolve the political disagreements between Flanders and Wallonia—getting nowhere.

Claeys said at his news conference that Belgium's current political deadlock highlights the need for a "neat and tidy dismemberment." Perhaps he had missed his calling: surgery. Does a MEP speaking on the issue intimate that the E.U. could (or should) play a fruitful role in the dismemberment of one of its states? "This can be done without chaos and will be in the best interest of the citizens in Flanders and Wallonia," he declared—but how?

Gerolf Annemans, leader of the Vlaams Belang group in the Belgian state parliament, declared at the same news conference, "We have now reached the point of no return and Flanders should start preparing for an orderly split-up of Belgium." He said it was up to the Wallonia region to decide its fate, adding, "It may set up its own independent state or seek to join France. But that is not our business." Ouch! 

The Belgians may need the help of the E.U. should the state be partitioned into two—or would it be more? A neat dismemberment may not be possible. For example, there is the small region of German-speaking Belgians. Would they join Germany or form their own state?  More intractable still is the vexed question of what would happen to Brussels, the Belgian state capital and self-declared "capital of Europe."

                              TheParliament.com

According to Annemans, "Brussels is and will remain part of Flanders." However, because the majority of people living in Brussels are French-speakers, he acknowledged that a ‘deal’ would be necessary in order to resolve the city’s status. Would Brussels become a city-state like Vatican-City in the E.U.? "The French-speakers in Brussels could form a region of their own or even their own republic. . . . However, we are saying let's split Belgium to begin with then we can deal with Brussels." I contend in contrast that partitioning Belgium without a clear plan for Brussels would be akin to kicking the can down the street in a way that risks disaster down the road.

Far more disproportionate than a city as a region in an E.U. state (e.g. Bremen in Germany) is a city as an E.U. state itself (e.g. Vatican City). The E.U. does not need another such state, as if a city were a colleague of a state like France, Britain or Germany; rather, states should “cluster” in terms of size.

In terms of possible solutions for Brussels in a partitioned Belgium, the city may be close enough to Wallonia that the french-speaking areas could be united. However, the Flemish would probably not accept that as the price of partition. So as an alternative, Brussels could be part of Flanders.

That many of the city residents speak French is not necessarily an insurmountable obstacle to this, as every state has minorities. This is not to say that French should be an official language in Flanders, but neither is Spanish an official language in Illinois but a Spanish-speaking minority exists in that state. Moreover, Flanders would presumably be a state in the E.U., which is multilinguistic.  Surely languages of neighboring states are represented as minority groups in several of the E.U. states. Linguistic purity in most E.U. states is simply not realistic. Of course, any French-speakers living in Brussels who could not stomach being in “the other side” of a partitioned Belgium would be free to move to another E.U. state if it means so much to them.

As still another alternative, the option of Brussels as neither in Flanders or Wallonia could be realized by treating the city as the District of Columbia is treated in the U.S. That is, Brussels could be declared the federal city of the E.U., thus not in any state (so no state would be favored by it). Spreading E.U. governmental bodies among several states may be politic at the state level, but the arrangement must surely hamper E.U. functioning (which some Europeans undoubtedly seek). Making Brussels the federal city of the E.U. (interestingly, Washington D.C. was originally called “the federal city”) could “kill two birds with one stone”—meaning that two benefits could be realized. As the federal capital (of the E.U.), Brussels would undoubtedly become multilingistic rather than predominately French-speaking. Additionally, Flanders and Wallonia would be more able to go their separate ways should supermajorities of their respective peoples want to do so.

While it might seem strange or awkward for a member of the E.U. Parliament to air Belgium’s dirty laundry out in a press conference, Belgium is a state in the E.U. and the latter could be of some help in what had paralyzed the state government. To be sure, there is a bias in potential E.U. involvement, as the other states would have to make way for “two states from one” in terms of losing proportionate power in the QMV (qualified majority voting—e.g. 55% of people and 55% of the number of states) mechanism in the European Council. Similarly, were Southern Illinois to become its own state in the U.S., what had been Illinois would then have four rather than two votes in the U.S. Senate (two for what is left of Illinois and two for the new state in Southern Illinois). So I would not be surprised, given the amount of influence of the state governments at the E.U. level (which used to be so in the U.S. too!), if certain E.U. institutions begged off from facilitating a partition in Belgium—though the Commission and the ECJ, which are less influenced by the state governments, might be willing to help out should Belgium go that route.

Ultimately, the fate of Belgium is up to the residents there—but at what percentage? A mere majority?  A super-majority?  Sixty percent? Seventy? What percentage constitutes popular sovereignty? Furthermore, if a (super) majority of one of Belgium’s regions decides the secede in order to form a new state, should the other region’s people have a veto? In my view, each region is self-determinative, so a super-majority in one is sufficient for it to secede from the state and become a new one; otherwise, such a region would be held, in effect, in bondage within Belgium. Presumably the new state could then apply for accession into the E.U., while what remains of the state of Belgium would still be an E.U. state. Were both regions to agree to split up, each would presumably have to apply to become a state in the E.U. unless the latter were to intervene proactively.

Source:

Martin Banks, “MEP Calls for ‘Orderly’ Split Up of Belgium,” TheParliament.com,  22 June 2011.

Wednesday, June 22, 2011

U.S. Government Debt: A Constitutional Moment?

The Congressional Budget Office (CBO) issued a report in June 2011 indicating that the debt of the U.S. Government has reached a dangerous level—that is, one likely to trigger a financial crisis. This characterization ought to attract close attention by the American people, for the viability of the Union itself may be at stake. Such a condition warrants a constitutional moment—that is, a time when the citizenry focus on solving a basic governmental problem. In other words, the matter of the publically-held U.S. Government debt may justify popular sovereignty stepping in. Of course, how this would be done is itself a problem, particularly when government officials have no interest in relinquishing their power as our agents.

Here, in a nutshell, is the problem. According to The Wall Street Journal, “Most analysts say the borrowing cap [of $14.29 trillion] would have to be raised by more than $2 trillion to carry the government through the 2012 election. . . . The Congressional Budget Office estimates the cumulative deficit for 2012-21 at $7 trillion. . . . Treasury Secretary Timothy Geithner, speaking at The Wall Street Journal's CFO Network conference in Washington, said there is broad agreement that the country needs $4 trillion to $5 trillion in deficit-reduction over 10 years, but budget negotiators haven't agreed on how those reductions should be structured. . . . Geithner said it would be politically impossible to reach a final agreement unless the package included some tax increases, though many Republicans have said they won't support such a plan.”

Given the basic disagreement concerning revenue, government officials involved in negotiations have been considering using a chain-weighted CPI to adjust entitlement benefits. However, such a change would result in only incremental change—a mere $300 billion over ten years saved out of a cumulative expected deficit of $7 trillion. In other words, the agents of the people, finding themselves in a basic disagreement, turned to incremental, rather than systemic, change.

I contend that a basic structural imbalance inheres in a debt that is 70% of GDP. That is, for a government’s debt to reach a level that could trigger a financial crisis, something rather basic must surely be wrong with the way that government handles money. Such a basic, or systemic, problem justifies, and indeed requires, a momentary return to popular sovereignty. To rely exclusively on agents gives them too much power as agents and essentially relegates the importance of the problem.

In the American context, popular sovereignty traditionally operates not only by electing candidates for office, but also through referendums and through holding constitutional conventions. The use of a Union-wide referendum could answer whether tax revenue increases should be part of the solution, as well as whether entitlements ought to be cut. Additionally, the people could be asked whether any major federal programs should be transferred both in revenue and spending to the states.

The use of constitutional conventions, albeit rarely invoked historically, could address a possible constitutional amendment mandating a balanced budget (the problem being any loopholes, which would inevitably be exploited by the agents). Moreover, conventions could address the question of whether the U.S. Government’s debt is a symptom of a more basic imbalance between the U.S. Government and those of the several states. In other words, the crisis may go beyond the fiscal kind—political consolidation itself needing to be addressed if the U.S. Government is simply doing too much. 

To be sure, some of the American states, such as California, Florida and Illinois, have been dealing with sovereign debt of their own, just as Greece, Spain and Ireland have as well. However, whereas the revenue capability of the E.U. states has not been crowded out by the E.U.’s revenue authority, the U.S. states have been hampered by the financial “needs” of the General Government.  Redistributing competencies or domains toward a balance in terms of federalism could ironically unburden the state governments even as more is laid at their laps. This is a matter for the popular sovereign—the people—to decide, given the foundational nature of the question.

Lest the duty of the popular sovereign be ignored in favor of the more convenient agent-driven debates on a chain-weighted CPI (a “managerial”-level concern), the United States may inadvertently hit the consolidated iceberg ahead because the rudder of the consolidated ship of state is too small for the ship. If that ship were not relied on so much, smaller ships could go around the stolid floe.


Source:

Janet Hook and Corey Boles, “House GOP Digs In on Debt Ceiling,” The Wall Street Journal, June 22, 2011.

Burn Baby Burn: Moral Hazard & Fairness

On a call with another of the company’s traders when a wildfire in California was putting some electric wires at risk, an energy-desk trader at Enron quipped, “Burn Baby Burn!”  The loss of the electricity wires would have decreased supply, thus jacking up the price of electricity, which Enron was only too glad to provide.  Similarly, “Burn Baby Burn!” can be put in the mouth of any one of the firefighters of the South Fulton fire department in Tennessee who watched Gene Cranick’s home burn to the ground because he had not paid the $75 annual fee that residents outside of city limits had to pay in order to receive the “service.”  When Cranick called 911 as his house was on fire, he was essentially told, “I’m sorry, sir, but you are not on the list for that service. Have a nice day.” The fire department did indeed come out, but only to protect his neighbor’s house—the firefighters standing back as fire gutted Cranick’s house. Fortunately, no one was killed in the blaze.  Had there been a death involved, perhaps those firemen who watched could have been charged with manslaughter or at least with willful negligence. Cranick offered to pay the $75 fee on the spot, but the fire department rightly pointed out that if it allowed that practice, the only people who would even pay the fee would be those whose houses were currently ablaze.  In other words, the risk of moral hazard was too great for the fire department (and the town’s government) to make an exception.
Moral hazard—the risk that bailing out one entity would give others the signal that it’s ok to take more risks because they could expect to be bailed out—was behind Treasury Secretary Henry Paulson’s decision to let Lehman Brothers go bankrupt. The ensuring precipitous drop in the Dow gave Paulson the message that obviating moral hazard could itself be hazardous. Perhaps he felt that he was in a double-bind without any good route out. Letting Lehman burn down did indeed send a message, but the market had a message of its own: “We are too interconnected to survive this lesson.” In other words, the patient as a whole was too sick to take the medicine.

Just as the fire department came in to protect houses near Cranick’s, the U.S. Government stepped in to fortify the banks freezing up in the wake of Lehman’s collapse. Doubtless both Cranick and Fuld must have felt that the moral principle against moral hazard is antithetical to the principle of fairness even though Cranick could have paid the fee and Fuld had had opportunities to sell Lehman for a reasonable price even if he wanted more. The perceived violation of fairness is nevertheless invoked on the premise that human nature is indeed fallible. That this premise justifies fairness trumping measures against moral hazard involves a judgment call, hence ethical analysis is not apt to issue in a definitive verdict.

Perhaps the way out of the dilemma is to not allow it to arise in the first place. A voluntary fee for fire protection is itself problematic, as was the refusal of the U.S. Government under Clinton’s watch to regulate derivatives. Moreover, allowing banks to become so large that the demise of one could be foreseen to trigger a credit crisis is foolish even if it is in the immediate interest of officials in business and government. In other words, seemingly intractable ethical problems can sometimes be unwound in that they can be found to have arisen from a faulty policy or institutional arrangement. The root problem is often not ethical in nature, and thus can find a definitive remedy based on effectiveness.

Click to add a question or comment on moral hazard and fairness.

Source:

Monday, June 20, 2011

The Flemish and Walloons: Worlds Apart?

 I contend that the cultural differences between the Flemish and Walloons within Belgium have been exaggerated to such an extent that the state government of Belgium has been paralyzed and solutions have eluded the Belgians. Reducing the fear-induced swelling of the admittedly real differences within Belgium may therefore facilitate relief from the paralysis. In other words, the added perspective from viewing the cultural differences as less traumatic can help the Flemish and Walloons to either live together or, ironically, be able to separate. That’s right—a more realistic assessment of the differences can actually facilitate the separation of Belgium into two (or three) E.U. states (or Flanders joining the Netherlands and Wallonia joining France—and the German-speaking area joining Germany). Exaggerating differences can snuff out consideration of such alternatives and enable continued paralysis.

To be sure, distinctions can indeed be made between the Flemish and Walloons; we can’t simply assume that the overall Belgian (or European) identity relegates the regional distinctions. "I am Flemish first, Belgian second," says Pascal Francois of Aalst.  Another Flemish man says, “it’s a toss-up when I’m in Belgium.” Even though I am a citizen of the U.S. rather than the E.U., I can relate.

I regard myself as a Midwesterner first, Illinoisan second. Being a Midwesterner essentially means to me having imbued the intrinsic down-to-earth culture of my native region of Illinois, which, as mostly rural with only a medium-sized city as its de facto capital, is distinct from Chicagoland (which is less Midwestern than the other regions). To be sure, “the Midwest” is a broad area in mid North America that transcends political categories. The label goes far beyond geographic connotation, for “the Midwest” stands for a certain “home-grown” (rather than foreign) culture wherein honesty (and bluntness), prudence, populism, and humility (and stubbornism) are particularly valued. The Midwest is known as “the heartland” because of these ethical virtues. In Illinois at least, being a Midwesterner can be readily identified with one's specific region because the cultural values are more immediate than the political identification associated with being an Illinoisan. So being a Midwesterner is to being Flemish as being an Illinoisan is to being Belgian. So too, being an American is as being a European, even if the emphasis differs. Ideally, a federal system proffers political expression to each of these respective identities. Unfortunately, fear and the related intransigence (or stubbornness) can block full expression of one or more of the levels of cultural identification.

In the case of giving political expression to regional identification in Illinois, fear of change has gotten in the way. For example, the Illinois Senate could represent the regions (i.e., clusters of four or five counties), hence facilitating their expression. Given how much the regions differ, the result has been a deficit in political identification within Illinois. Because the republic is quite heterogeneous (including linguistically, which, by the way, by no means exhausts the ways in which cultures can differ), I did not grow up identifying myself as an Illinoisan. In fact, the regions in Southern Illinois have more than once attempted to secede from Illinois due to economic, political and cultural differences—mainly from Chicago (whose culture is foreign even from the vantage-point of the two other regions in Northern Illinois). In my late twenties, I visited Southern Illinois once from the North. Even though I am not from the Chicago region, I felt at the time how strange it was that the place was “Illinois.” You’re not Illinois, I thought to myself, this place is different and far away. The people talk differently. Unfortunately, I did not have a regional political identity on which to rest this intuitive reaction of semi-foreignness. Perhaps the Walloons feel a semi-foreignness when they are visiting Flanders (and so too, the Flemish, when visiting Wallonia), though in their case, unlike mine, regional political identification can fortify the regional cultural bases of “home.”

In short, I can understand why a Belgian might identify as Flemish or a Walloon first and want to give political expression to it, given the cultural diversity within Belgium. Such identification is not a bad thing in itself. Of course, whereas there are regional dialects (and some unique vocabularies) in Illinois, Flanders and Wallonia enjoy different languages—indeed it can even be said that these regions enjoy standing for Dutch and French, respectively. Even as language is a major point of difference between the two regions, this basis can indeed be exaggerated, playing on the generalized fear by emphasizing the standing for over simple enjoyment. Il est facile de craindre.

For example, The Telegraph reported in 2010 that “Pascal Smet, the schools minister for Flanders, has horrified [the Walloons] by suggesting that Flemish children, who are Dutch speakers, should learn English as their second language, rather than the French spoken by two fifths of their countrymen in Wallonia.” While being horrified constitutes an over-reaction, Pascal Smet must have known in 2010 that he had “picked a broader fight” under the reasonable rationale that English should be learned because it is becoming the common language of the E.U. "I note that the engine of European integration is sputtering. One reason is that we do not speak the same tongue, hence my plea for a common European language," he said according to The Telegraph.

Of course, Smet could have satisfied his purpose by proposing that English and French be taught to the Flemish kids. His needless insensitivity alone can be seen to have inexorably fomented an exaggerated response. According to The Telegraph, “Smets proposal that children in Flanders can dispense with French [has] deeply angered Belgian Walloons already fearful over their fate and Belgium's future after Flemish separatists won the largest share of the vote in elections.” In other words, even sensible proposals involving the languages can escalate, fueled by the more generalized fear in the context of mistrust.

In short, already-stark differences existing between the Flemish and Walloons are easily exaggerated, creating a self-fulfilling prophesy of separateness wherein people have a knee-jerk tendency to over-react. This can be seen as well where the Flemish and Walloons come into close contact. At least in the short run, integration can provoke flash-points.

According to the BBC, “Flemish defensiveness is at its sharpest near Brussels. The capital, which used to have a Dutch-speaking majority until the early 20th Century, is now overwhelmingly francophone. Its population is spreading outward in search of greenery and cheaper homes - a move that many in the Flemish suburbs find threatening. Liederkerke, a traditionally working-class town 15 miles (25km) west of Brussels, is one of many suburbs that have seen an influx of both rich expatriates and African immigrants.” It is strange that Walloons from the south of the state would be compared to expats and African immigrants.

The cultural differences within Belgium should not be construed as though they were a microcosm of cultural differences within the E.U. or even internationally. For example, the BBC avers that the “cultural divide between Europe's Germanic north and Latin south has run through the middle of Belgium since the Roman Empire.” However, Flanders is not exactly Bavaria, nor is Wallonia populated by Spaniards and Sicilians. That is to say, perspective ought to be maintained in assessing the extent of the cultural differences within a small E.U. state. Let’s not get carried away.

                                               BBC

Of course, as I suggest above, cultural differences do indeed exist between the Flemish and Walloons. Among the relevant factors, economic differences have fueled the continued salience of the regional identities—indeed, in exaggerating them as well. Luc De Bruyckere, chairman of the Ghent-based food group Ter Beke and vice-president of FEB, Belgium's main employers' federation, for example, “points out that Flanders has a very tight labour market, while Wallonia is suffering from 17% unemployment.” Remi Vermeiren, a former chairman of the banking giant KBC, contends that Flemish people "believe more in a market economy" than Walloons. However, I have met Flemish who have stressed the European socio-political virtue of solidarity (which is virtually absent from the American political lexicon).

Therefore, I suspect that the economic ideological differences between the Flemish and Walloons are overstated. It is not as though the Flemish have adopted Sarah Palin’s view of capitalism while the Walloons have adopted a command-and-control economy akin to that of the defunct Soviet Union.

Furthermore, economic disparities have fomented prejudice, which has the effect of exaggerating cultural differences and inhibiting viable solutions. According to the BBC, “Flanders indeed has wealth, a hard-working population, and beautiful, world-famous cities - like Bruges, Ghent and Antwerp. Many there are asking why their taxes should prop up what they regard as a lagging, mismanaged region.” Are the Walloons really not “hard-working” and not able to manage themselves? Such assumptions do not necessarily follow from economic differences. More likely, regions differ economically because their dominant industries are different and perform differently. Even so, Roger Vandervoorde, 65, a retired sales director, for example, told the BBC, “Walloons should be responsible for what they do.” Prejudice drips off this statement, reflecting more on his state of mind than any lack of responsibility among the Walloons. Besides exaggerating cultural differences, such prejudice can impact political recommendations and reactions, which have in turn have exaggerated the differences.

According to the BBC, “resurgent Flemish pride is based on much deeper forces than just material wealth.” Specifically, “The sense of Flemish identity is all the more acute as it was suppressed by the French-speaking elites that ran Belgium after the 1830 revolution. The constitution was written in French. A Dutch version, written a century later, was not given equal legal force until 1967. As the Dutch-speaking majority demanded recognition, it was mainly pressing claims against the Belgian state.” Accordingly, “a wide majority in Flanders reject Flemish separatism. Most people just want more autonomy within the Belgian state.” This autonomy can be read as a reaction from having felt oppressed (or a fear of potential oppression in the future).

The generalized fear interlarding the Flemish is evident in the following observation from the BBC: “Wallonia may be poorer, but it is part of the 200m-strong francophone community. The Flemish are not standing on the shoulders of a friendly giant next door - and can be irked by Walloon cultural self-assurance.” Lest such fear be given too much leeway, the Flemish might recognize that Flemish conservatives have been dominating the Belgian state government of late and that both Belgium and France are states in the European Union. The ECJ, for example, is fully capable of restraining an imperialistic France intervening in Belgium on behalf of the Walloons.

Similarly, a generalized fear has interlarded the Walloons too. This can be seen in the Walloons’ reaction to Vandervoorde’s claim (perhaps made on the basis of his prejudice), “The best would be a confederation, with each part responsible for itself and only a few small matters handled federally.” Perhaps reacting subconsciously to the prejudice in addition to the proposal itself, “the Walloons are digging in their heels. They regard confederation as secession in all but name, and insist on keeping tax and welfare policies at federal level." The Walloons’ political reaction, in other words, may not simply be a desire for continued redistribution. At root, the fear might be that of being rejected. Such emotional/political fear need not exaggerate the perception of cultural differences or natural reactions to them.

Federalism, and even separation, can be natural reactions to real cultural differences. De Bruykere has a point in urging, “We have to organise ourselves in such a way that the different problems can be answered. One size fits all is not a solution.” While this dictum pertains especially to empire-scale unions such as the E.U. and U.S., it can also apply to heterogeneous states such as Belgium and Illinois. Just as the Chicago region ought not dominate the other regions of Illinois, Flanders ought not dominate Wallonia. That the two republics are themselves states in empire-level federal systems can be expected to relegate the “shock” thought to ensue from the partitioning of either Belgium or Illinois.

Even as prejudice can exaggerate the salience of extant cultural differences, being in an overarching federal system can be an asset in dealing with them. Belgium being a state in the E.U. can take some of the pressure off the Belgian government by having a more activist E.U. presence in the state (e.g., dealing directly with Flanders and Wallonia). Alternatively, the E.U. can facilitate Belgium in reconfiguring into two states or in splitting off into the Netherlands and France. Accordingly, Belgians, whether Flemish or Walloon, can afford to take a breath and gain sufficient perspective to stop clutching in fear to what has been at the very least a rather uncomfortable status quo.

Sources:

BBC News, “Rich Flanders Seeks More Autonomy,” September 30, 2008.

Bruno Waterfield, “Flemish-Speaking Belgian Minister Wants English To Be Europe’s ‘Common Language’,” The Telegraph, September 27, 2010.


Sunday, June 19, 2011

Mind-Games: On the Self-Regulatory Market

Two days after the LTCM bailout was agreed to in 1998, a worried Alan Greenspan, leaning toward raising rates at the time, cut the federal funds rate. It was not enough to calm the markets, and he cut it again three weeks later. . . . It was not the self-correcting powers of the markets but aggressive central bank intervention plus a new round of irrational speculation that provided a floor under the downward financial prices and the calamitous consequences of bad Wall Street decisions. It was not even the LTCM rescue alone by private banks that saved Wall Street” Madrick, p. 281).
“Alan Greenspan learned no lessons from these events about the inherent instability of a completely free market in finance. He still insisted markets regulate themselves” (Madrick, p. 282).
Analysis:
Milton Friedman believed that government regulation keeps markets from being efficient; he assumed that the market mechanism is capable of regulating itself. That increasing uncertainty and risk might reach a point that a market mechanism would freeze up, or collapse, rather than simply incorporate the increased volatility through pricing is a point extrinsic to the efficient market thesis. That theory submits that markets tend toward equilibrium, rather than spiraling out of control.
Testifying before Congress after the credit crisis of 2008, Alan Greenspan was asked by Henry Waxman (D-Calif) whether the government-averted credit-market collapse had prompted any revision of the retired Fed Chairman’s economic paradigm. Greenspan admitted to a flaw in the ointment of self-regulatory market theory. In spite of 40 years of evidence to the contrary, official Washington’s font of economic wisdom had drawn a blank.
Lest the human mind be left without an operative paradigm by which one can make sense of the world, by mid June 2011, Greenspan had mentally reduced the fly in the ointment to a mere footnote. Asked by Charlie Rose on The Charlie Rose Show what how the crisis had changed his understanding of the market mechanism and economics, Greenspan admitted his surprise that bank CEOs do not always operate their banks so as to keep them solvent. This is how the financial crisis of 2008 had changed his view of the market mechanism after all. Of course, such a fault could be attributed to distortive government regulation (e.g. regulation Q limiting deposit interest) rather than to some inherent weakness in the market mechanism being able to regulate itself.
Greenspan had backtracked; he had unlearned his lesson much like an alcoholic “forgets” that he or she has admitted to having a drinking problem.  Faced with a fundamental flaw in a paradigm on which it relies, the human mind can succumb to retreating to the safety of denial. In his Structure of Scientific Revolutions, Thomas Kuhn tells us that it can be a generation before the downfall of a reigning paradigm is finally recognized, after the current proselytizers have passed and the people to come, without a vested interest in the prevailing paradigm, have taken their place. Perhaps it is only the human mind writ large (i.e, intergenerational) that advances, or really learns.
Lest we have to wait for the dead to bury themselves, we can affirm and acknowledge right now that the market-mechanism is not inherently self-regulating, and that this flaw is not caused by government regulation. Instead, markets can collapse—just as a human being freezes up from fear when risk and uncertainty hit a certain threshold—only to be revived by governmental intervention.  
Click to add a question or comment on whether the market-mechanism is self-regulatory.
Source:
Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knoff, 2011).

Judicial Ethics: Friendship and Philanthropy

Harlan Crow is a Dallas real estate magnate and a major contributor to conservative causes. He has done many favors for his friend, Clarence Thomas, “helping finance a Savannah library project dedicated to Justice Thomas, presenting him with a Bible that belonged to Frederick Douglass and reportedly providing $500,000 for [Virginia] Thomas to start a Tea Party-related group.” The two friends have also spent time together at “gatherings of prominent Republicans and businesspeople at Crow’s Adirondacks estate and his camp in East Texas.” Crow also “stepped in at Thomas’ urging” to finance the multimillion-dollar purchase and restoration of the cannery that had employed the justice’s mother. Crow’s restoration “featured a museum about the culture and history of Pin Point that has become a pet project of Justice Thomas’s. . . . While the nonprofit Pin Point museum is not intended to honor Justice Thomas, people involved in the project said his role in the community’s history would inevitably be part of it, and he participated in a documentary film that is to accompany the exhibits.”

                            Justice Clarence Thomas  (Kamenko Pajio/AP)

News “of Mr. Crow’s largess [has] provoked controversy and questions, adding fuel to a rising debate about Supreme Court ethics. But Mr. Crow’s financing of the museum, his largest such act of generosity, previously unreported, raises the sharpest questions yet — both about Justice Thomas’s extrajudicial activities and about the extent to which the justices should remain exempt from the code of conduct for federal judges. Although the Supreme Court is not bound by the code, justices have said they adhere to it. Legal ethicists differed on whether Justice Thomas’s dealings with Mr. Crow pose a problem under the code.”

“The code says judges “should not personally participate” in raising money for charitable endeavors, out of concern that donors might feel pressured to give or entitled to favorable treatment from the judge. In addition, judges are not even supposed to know who donates to projects honoring them. . . . (T)he restriction on fund-raising is primarily meant to deter judges from using their position to pressure donors, as opposed to relying on ‘a rich friend’ like Mr. Crow, said Ronald D. Rotunda, who teaches legal ethics at Chapman University in California.” On the other side of the argument, Deborah L. Rhode, a Stanford University law instructor who has called for stricter ethics rules for Supreme Court justices, said Justice Thomas “should not be directly involved in fund-raising activities, no matter how worthy they are or whether he’s being centrally honored by the museum.”

Ethical Analysis:

Ethical analysis is hardly an objective science. Nietzsche’s view that a philosopher’s philosophy is merely a reflection of his or her most dominant instinct expressed via cognition seems particularly relevant. In other words, out of the tussle of one’s instincts one remains and it can be expressed as one’s thought. For instance, the thought that first came to my mind in reading the Times article was that exempting U.S. Supreme Court justices from the judicial ethics code violates the ethical principle of fairness. This “first find” ethically-speaking seems to me to be the most indubitable conclusion of the case, ethically-speaking. However, my perception as well as “the salience” of the principle of fairness may have more to do with which of my instincts is most dominant in my psyche than any objective determination of ethical outcome.

The principle-instinct of fairness could be so dominant for me because it was conditioned as such through my early years. Specifically, I have a brother who is 1.5 years younger than me, and the closeness in age meant that the principle of fairness was seldom far removed when we were kids. For instance, awhile after we moved to a house my parents had had built, they made split our large, shared bedroom into two. The question not far from the surface all around was “is the space equal?”—as if square feet would matter to two boys (we eye-balled it and concluded the rooms were “fair enough”).

What instinct and supporting personal experience lies behind the lawyer’s thou shalt not claim that justices should not be involved in fundraising PERIOD? Is there an ethical principle in that asseveration? Considering that the lawyer at Stanford does not have a graduate degree in ethics (or law, for that matter), her declaration is highly likely based on a dominant instinct that has an urge to express itself in the garb of ethical language.

The lawyer at Chapman is more discerning, pointing to the purpose in the ethical prohibition on fundraising: the point is to keep justices from using their influence to get rich people to donate. In the case of Justice Thomas, it appears that Harlan Crow has wanted to make his donations. This, unlike had Thomas used his influence to secure the gifts, is not ethically problematic. The ethical problem would arise should a matter of concern to Crow come before Thomas’ court; the justice would be ethically obliged to recuse himself to obviate his personal conflict of interest. Announcing such a conflict would not be sufficient, as the underlying temptation to lean in favor of the benefactor would still exist; it would simply be apt to be better camouflaged by legalese. Of course, should a justice choose not to know the sources of beneficial donations, recusals to avoid such conflicts of interest would be less likely.

Therefore, one way to play it ethically is to allow the particular justice to decide how much he or she wants to avoid having to recuse based on knowing the identity of a benefactor. Hardly objective, this ethical strategy is one of several that are possible. It reflects empowering individual justices to determine the extent to which they want to subject themselves to the possibility of having to recuse to avoid a conflict-of-interest. The principle of boyhood fairness insists that the strategy be applicable for any federal judge, without exception. 

Last but not least, the field of judicial ethics would be better served if American law schools would follow their European counterparts in hiring legal scholars (i.e., holders of the doctorate in law, the J.S.D.). Also, a scholar of judicial ethics should have at least one degree in philosophy (ethical theory)—preferably a masters or a joint Ph.D./J.S.D.


Source:

Mike McIntire, “Friendship of Justice and Magnate Puts Focus on Ethics,” The New York Times, June 18, 2011.