The Worden Report

Corporate Legal Personhood in the Kiobel Case

2012-02-29T14:23:00.000-06:00

In Kiobel v.Royal Dutch Petroleum, the U.S. Supreme Court waded into the murky waters ofcorporate legal personhood, at least potentially, in hearing oral arguments inlate February 2012. The issue in the case is whether corporations can be heldliable to the extent that they are complicit in a foreign government’s humanrights abuses. Legal personhood would say that they could be. This wouldrepresent an obligation that goes with legal personhood. The question iswhether the justices who conferred in the CitizensUnited decision the right of corporations, based on their legal personhood,to make unlimited political donations would also be willing to view obligationsas “part and parcel” with such personhood. If not, then legal persons, unlikehuman persons, would have the benefits of personhood without any of theobligations—an oxymoron to corporations to be sure. In other words, such an asymmetrywould render the legal personhood doctrine itself as akin to a one-sided coin—whichcannot exist, let alone stand.

As in any legalanalysis, it is best to include a bit on the particular case itself. “InKiobel, about a dozen Nigerians contend that Shell Oil's parent company aidedand abetted their government in its torture and extrajudicial killing ofenvironmental and human rights protesters resisting Shell's operations inNigeria in the 1990s. . . . The plaintiffs brought their suit under a law,commonly called the Alien Tort Statute, passed by the first Congress in 1789 toallow foreign nationals to bring civil suits in federal courts ‘for a tortonly, committed in violation of the law of nations or a treaty of the UnitedStates.’” The law is silent on whether corporations can be sued under the law.Because of this silence, the U.S. Supreme Court can decide the case on thebasis of whether corporations are legal persons, and, if so, whetherobligations go with such personhood.

For its part,the U.S. Government submitted a brief stating in part, “Corporations have been subject to suit for centuries, and the concept ofcorporate liability is a well-settled part of our 'legal culture.'" Inother words, corporate personhood entails obligations, one of which is torefrain from contributing to human rights abuses abroad. On the other side,corporations and their allies have been submitting briefs arguing that theyshould not be subject to the law. It is only natural to want benefits withoutobligations. Corporate power could indeed enable “legal persons” to shamelesslyenjoy the benefits without being subject to any of the obligations—even as such“persons” extoll their “corporate citizenship” for public relations purposes.That is to say, the U.S. Supreme Court could maintain the legal person doctrinefor corporate contributions and essentially ignore it in refusing to includecorporations as the “persons” subject to the Alien Torts Statute.

Indeed, in oral arguments, the high court seemed splitfive to four, with the conservative majority looking to exempt corporationseven as it had cited their personhood in granting them the right of “wealth asfree speech” in political contributions. Justice Kennedy, for example, saidthat “the case turns in large part” on the point that “international law doesnot recognize corporate liability.” However, U.S. law is not limited to what isrecognized in international law. In fact, the U.S. does not even recognize theInternational Criminal Court. Chief Justice Roberts and Justices Alito andScalia expressed hostility toward the Alien Tort Statute itself. Alito notedthat the lawsuit had been brought by foreign plaintiffs against a foreigndefendant for acts that took place in a foreign country. “What business does acase like that have in the courts of the United States?” Justice Ginsburg notedthat the U.S. Supreme Court had already allowed such cases to be brought underthe Alien Tort Statute. She reminded the Court that the question was whetheronly individual defendants or also corporate defendants are liable—not whetherthe law itself is constitutional. Alito’s ploy at subterfuge—subtly attemptedby pivoting on “the issue”—had been rendered transparent by the veteranjustice. Unfortunately, however, the doctrine of legal personhood itself wasnot given center stage in the oral arguments.

In my view, rather than focus on the relationship betweenU.S. and international law, the justices should have used the oral arguments inKiobel to decide in a definitive way whether “personhood” extends to corporations.Given the Court’s Citizen’s United decision,which allows corporate “persons” to give unlimited amounts to political actioncommittees, a decision on Kiobel could have “laid down the law” not only on “abstract”legal personhood, but also more specifically on whether both benefits and obligations go along with personhood in a legalsystem based on laws. If corporations are able to cherry-pick legal opinionsthrough inconsistent conservative justices in the majority—the Court itselfreflecting a more general partisanship rather than the coherency that lawitself must have—then we are no longer a peoplebased on law rather than the power of the most powerful of our institutions. In other words,corporations may indeed be able to get away with all of the benefits ofpersonhood without any of the obligations, with the cost being “passed on” interms of the viability of the United States themselves.

Sources:

Mike Sacks, “Corporate Personhood Case Forces SupremeCourt to Hack New Path,” Huffington Post, February 27, 2012. http://www.huffingtonpost.com/2012/02/27/corporate-personhood-supreme-court-alien-tort-statute_n_1305226.html

Mike Sacks, “CorporateImmunity Looks Likely: Supreme Court Seems Ready to Side with Shell in HumanRights Suit,” The Huffington Post, February 28, 2012.

http://www.huffingtonpost.com/2012/02/28/corporate-immunity-supreme-court-shell-kiobel-human-rights_n_1306825.html

Prognosis for the Chinese Economy

2012-02-29T12:59:00.000-06:00

At the end ofFebruary 2012, the World Bank released its “China 2030” report in Beijing. Thebank’s president, Robert Zoellick, said that China’s economic growth model isunsustainable, so significant reforms are needed. The report projects growthdown to five or six percent annually by 2030, down from the ten percent annualgrowth in the thirty years up to the issuance of the report. Given the natureof the reforms, the Chinese government officials have their work cut out forthem.

For instance,the report calls for “further reforms of state enterprises,” including“separating ownership from management.” Even in the case of the private sectorin the U.S., such a separation has been daunting, as CEO’s typically controltheir respective boards—even being chairman of the board. For stateenterprises, management may blur into the government officials under whom theenterprises are run. Moreover, the public or state interest is typically moresalient in state enterprises, so separating management from the ownership canraise problems of legitimacy and accountability. Furthermore, lacking anindependent judiciary, China is not exactly the sort of system wherein thechecks and balances of a separation of ownership and management could viablyfunction. In other words, hierarchical accountability wherein a boss tells asubordinate what to do is more in keeping with the macro political economy ofChina.

Secondly, thereport urges China to build several “world-class research universities.” Hereagain, the lack of an independent judiciary may make foreign scholars wary ofliving in China. On the plus side for China, strengthening researchdomestically may relieve the pressure to pirate technology from foreign companies(sharing technology is often a condition of foreign direct investment). Moreresearch done in China may result in relaxed FDI requirements and lessindustrial spying. The result could be higher economic growth rates both in theshort term and beyond.

Lastly, thereport urged more of a focus on environmental technology and more spending onsocial programs (ironic advice given to a communist country). Just monthsbefore the report, Beijing had agreed to make public the measurements of finerpollutants in the city (as the U.S. embassy had been publishing its own numbersthere anyway). While environmental technology could make a dent, the ultimateproblem for the Chinese concerning not just pollution, but economicsustainability as well, is the huge population—over a billion. Simply put,having more people means more must be consumed. Whether in terms of food ormore cars on the road, the population itself may not be sustainable, especiallyas more of it has become densely-packed in urban centers. Ultimately,sustainability for our species has to do with whether we can limit ourselves,not just individually or even in our cities, but also as a species.

Source:

Bob Davis,“World Bank Chief Urges Reforms for Beijing,” The Wall Street Journal, February 27, 2012.

http://online.wsj.com/article/SB10001424052970204653604577248194277473310.html#

The Oscars: Beyond Eye-Candy

2012-02-28T12:27:00.004-06:00

Writing on thenight of the 84^th Oscars in 2012, Michael Cieply and Brooks Barnesof the New York Times seem to wonder aloud about the 5,800-member Academy’scultural relevance. That most members had been “found to be overwhelminglywhite, male and 60ish” was presumably enough to relegate the Academy tooblivion. Coming during “Black History Month,” Billy Crystal’s portrayal ofSammy Davis, Jr.—a character sketch that had gone unscathed many times in the1980s—functioned as a lightning rod for people otherwise bored with the lack ofsurprises in the announced winners (or the host). Lest “let’s go kill Hitler”had become too politically incorrect for Crystal’s Sammy Davis character to say(like Crystal, Davis was Jewish) at the Oscars, one might take a gander at theexcellent film, Inglorious Bastards.This brings me to the main point. According to the New York Times, the Academymay not be relevant because the award-winners did not do well at the boxoffice. I respectfully disagree.

The New YorkTimes points to the “generally weak box-office performance among the year’s ninebest-picture contenders—only one of which, ‘The Help,’ amassed more than $100million in domestic ticket sales.” The best picture, The Artist, had amassed only about $32 million. According to theTimes, that film’s win underscores “the Oscars’ growing detachment from themoviegoing public at large.” Indeed, only about one in ten of the Oscars’viewers would have seen the film.

The classic cinema look reminded Oscars viewers of the grandeur of the big screen over laptops and ipads NYT

However, theOscars is not a popularity contest. The awards are not about telling the publicwhat most titillated it over the past year at the movies. The existence of thetechnical categories, such as art direction and sound mixing, points tosomething else—a chance for the experts to award talent. Whether we like it or not, the general public is not the best judge of the talent of a sound editor; we go to the movies to becomeabsorbed into a world, rather than to resist this by critiquing each technicalfunction that went into the making of the film.

So while manypeople saw the last Harry Potter movie and may have enjoyed it (I passed on thelast three in the series), art design and cinematography went instead to Hugo, a film that far fewer people hadseen. Whereas every member in the Academy can vote for best picture, the othercategories are voted on only by their respective practitioners. While thisallows for politics and bias (e.g. James Cameron not getting best actor for Avatar due to his personality), themethod also enables people in a position to recognize skill to be decisive inthe selections. A director watching another director’s film, for instance, canpick up on good directing much better than we could as viewers. I suspect thegeneral viewer’s opinion becomes more valid when a particular technicalfunction is bad (e.g. a scene is out of focus, or certain sounds can’t beheard). I suspect that practitioners in a given field are necessary to discernbetween five cases, each of which looks good to the rest of us.

Therefore, Ithink there is great value in having something more than The People’s ChoiceAwards. Moreover, the ancient Greeks were on to something when they definedvirtue as excellence, and modern society only shows its banality in viewingsuch a conception of virtue as not relevant simply because not many of thepublic have seen specific instances.

While I foundthe storyline of The Artist to beformulaic (the “punch-line” is actually in some classic films about silent-erastars), the selective use of sound was interesting, as was the decision to havethe film mostly silent in a sound era. I make this observation from thestandpoint of the art and science of film (as well as from the vantage-point offilm history), which is not necessarily that of the general public. The film’stechnical functions were fine; that those awards were spread around to otherfilms may testify to the imprint of practitioners of the respective functions. Inother words, one film might have had the best sound editing while another hadthe best art direction (though in 2012 Hugogot both of these).

Hugo deserved to win for its art andcinematography, as much of “that world” of the film is essentially art. Thescreenplay is also notable—even if many more people went to see Harry Potter. Hugo is not only a movie for kids; it contains, or is, a commentary on functionalism (andmachines, and indirectly, technology). The screenwriter backs this up with atheology that is historically associated with functionalism (i.e., Deism, orGod as clock-maker).

Even so—and thisis where having experienced screenwriters voting—the screenplay of The Descendants may have been even moredecisive (i.e., excellent) because the protagonist’s (not the actor’s!) choiceshaving to do with character (i.e.,virtue) are key to the film itself and especially its narrative. Specifically,how far the protagonist decides to go against one of his antagonists is vitalbecause anything would have been justified. In making the nuances of theprotagonist’s choices, the screenwriting is vital to the film in sayingsomething about being human. The general life and death theme means the storyis ultimately about being human. Relative to the screenplay of The Descendants, that of The Artist is rather formulaic—evenpredictable. Watching the ending, I thought to myself, “I’ve seen that before.”

I do not believethat the general public is in a position to judge between the best of the artand science of filmmaking. Indeed, filmmaking itself, including its varioustechnical functions, is not like cooking—something that most people can do (oreven judge). Whereas having taste buds makes anyone a potential expert onwhether a dish is “good,” we cannot assess sound mixing or art direction, oreven period costumes, simply by watching the finished product. Even in regardto acting, even though bad acting is rather obvious to the viewer, discerningbetween good actors must surely be difficult for a viewer who has not studiedand practiced the stills of acting. Knowing the “tricks of the trade,” only anexperienced actor could discern the nuances that distinguish good actors fromthe best.

We, the generalpublic, already knew before Oscar night which films had been popular and thus“good” in terms of popular opinion. What we didn’t know was which films werethe best, as judged by the various standards of filmmaking by the filmmakersthemselves. If such standards were indeed irrelevant in modern society, wewould quickly get what we think we want: more meaningless but tasty eye-candy.Lest we get what we think we want, we might want to view the Oscars assomething more than relevant, and we might acknowledge that we are not alwaysthe best judge. As valuable as democracy is (and even it can be excessive—hencethe checks and balances in the U.S. Government alone), not everything reducesto a poll. There is still such a thing as talent that comes from expertise, andthis is not always readily observable at a distance.

Source:

Michael Cieplyand Brooks Barnes, “’Hugo’ Wins 2 Early Awards at the Oscars,” The New York Times, February 27, 2012.
Updatedversion: http://www.nytimes.com/2012/02/27/movies/awardsseason/the-artist-wins-best-picture-at-the-academy-awards.html?pagewanted=2&_r=1&ref=arts

Ailing the E.U.: Unbalanced Federalism and the Euro

2012-02-27T13:20:00.000-06:00

Lest it bethought that the economic safety net for the neediest led some of the E.U.states into excessive public debt toward the end of the first decade of thetwenty-first century and beyond, the existence of some counter-examples suggestthat the actual culprit was misapplied modern federalism.

In early 2012,Sweden still had a very generous welfare state and yet had the fastest economicgrowth of any E.U. state. Leaving Malta and Cyprus aside, ranking the 15 E.U.states that were using the euro at the time by the percentage of GDP that theywere spending on social programs before the debt crisis shows that of Greece,Ireland, Portugal, Spain and Italy, only the latter was in the top five—and witha welfare state smaller than that of Germany. In other words, an economicsafety net for the poor does not necessarily translate into unsustainable governmentdebt.

Paul Krugmanclaims that the problem behind excessive European debt is “mostly monetary.” He writesthat “by introducing a single currency without the institutions needed to makethat currency work, Europe effectively reinvented the defects of the goldstandard — defects that played a major role in causing and perpetuating theGreat Depression. More specifically, the creation of the euro fostered a falsesense of security among private investors, unleashing huge, unsustainable flowsof capital into [the states on the E.U.’s periphery]. As a consequence of theseinflows, costs and prices rose, manufacturing became uncompetitive, and [states]that had roughly balanced trade in 1999 began running large trade deficitsinstead.” Had those states still had their own currencies—much like U.S. statesstill had their own for a time even as there was a continental currency—they couldhave devalued so their exports would be more competitive pricewise.

Krugman’smonetary explanation is valid, but it does not go far enough. The relative lackof fiscal coordination within the E.U., at least concerning the states usingthe euro, meant that Greece would slide into deeper and deeper debt relative toGDP while other states like Finland and Germany remained in sound fiscal shape.More specifically, the power of state government officials at the E.U. levelmeant that state deficit and debt limits would be ignored by states withimpunity. The resulting divergence put still more pressure on the euro.

The lessonis not just one of monetary policy; federalism should be balanced both fiscallyand monetarily, and the federal level should have sufficient authority to actas a check on wayward state governments. That is to say, the states should notbe given so much power that they can dominate the federal level in order to gotheir own way at the expense of monetary union. The main culprit here turns outto be anti-federalism—the view that the state governments should hold most oreven all of the power in a modern federal system. Anti-federalism cannotsupport a single currency any more than it could manage an alliance of thirteencountries against the British Empire. While the E.U. was more than a confederationeven in 2010 because the states were no longer sovereign, the federal levelstill had not achieved enough governmental sovereignty to support a fiscaldiscipline in lieu of sufficient redistribution between the states via thefederal center.

Lastly, as abit of an aside, expanding Krugman’s economicexplanation to include political theorysuggests that the empirical direction of both modern economics andpolitical “science” may involve an opportunity cost in terms of foregoneattention to political economy theory.Such theory can be found in Plato, Aristotle, Augustine, Hobbes, Smith, Marx,Veblen, and Hayak, as well as lesser-known theorists after WWII. Sadly, by thensuch writing was overshadowed by the empirical studies in the newly-splitdisciplines of economics and political “science.” In failing to address theproblem of federalism in the E.U. as it concerns the state debt problem,Krugman shows himself to be a modern economist. Note to the Nobel folks: If ourscholars continue to be so narrow, or “twentieth century,” in terms of thedisciplines (i.e., parsing and empiricizing them), history will be obliged torepeat itself, and to our detriment I’m afraid.

Source:

Paul Krugman, “WhatAils Europe?” The New York Times, February26, 2012.
http://www.nytimes.com/2012/02/27/opinion/krugman-what-ails-europe.html?_r=2

Moral Hazard in Mortgages

2012-02-26T16:43:00.000-06:00

“The cherishedAmerican ideal of self-reliance has a flip side,” according to the New YorkTimes. Before getting to the implications, or flip side, I want to fill outwhat informs this ideal. One could add to it the ideological stance that cameinto its own in 1980 with the election of Ronald Reagan, who declared that government is the problem. This impliesthat government should be minimized, and otherwise corrected as much aspossible. Government is hardly to be viewed as the solution. This is the legacyof the Kennedy assassinations of the 1960s, the Vietnam War, and Watergate aswell as Ford’s pathetic “WIN” buttons and Carter’s micromanagement and failurein regard to the hostages in Iran. I was not old enough for the Kennedys’truncated optimism (and that of Martin Luther King) to resonate; I knew thepolitical (and economic) pessimism of the 1970s and the energizing “fix it”mentality of the early 1980s. Of course, Reagan’s “new federalism” failed, asdid his aim to balance the federal budget, and the jury is still out on whether“peace through strength” pushed the USSR off the cliff.

Reagan isperhaps best known to historians and political theorists for having formallyshifted the political paradigm’s default to “government is the problem” afterat least a decade of political and economic paralysis. Dovetailing with theAmerican ideal of self-reliance, the default on government was still a headwindfor Barak Obama as he found he had to capitulate even on a “public option” forhealth insurance—relying instead on the same private insurers who had beenexcluding pre-existing conditions and otherwise cancelling policies at theadvent of a new illness. In other words, that the health-insurance lobby couldstill call the shots at the White House suggests the continuance of theheadwind running against government. Relatedly, in the 1990s Bill Clinton hadto give up on his vision of using government for grand purposes because theAmerican people were “not there.” Clinton found in the presidency instead aplethora of smaller accomplishments, such as adding to local police forces andotherwise acting as the mayor of an empire as if it took a village. He hadfigured out how to avoid the headwinds.

With thisbackground in mind, we can now get to the matter of the implications ofself-reliance and “government is the problem” as regards moral hazard. Ineconomic terms, it refers to “the undue risks that people are apt to take ifthey don’t have to bear the consequences. In other words, if the money is free,why not spend it on a designer purse?” Because of moral hazard, backed up bythe ideal of self-reliance and the default of “government is the problem,” thereis significant discomfort with the idea of bailouts and safety nets in Americansociety. According to the New York Times, the notion that even a small portionof aid even to homeowners who are “under water” (i.e., they own more on theirmortgages than their houses are now worth in terms of equity on the market) mightfind its way to the undeserving (or cheats) “can be enough to scuttle support,or restrict help so drastically that few can use it.” Adding to this sentiment,typically by vested interests, is the sanctity of contract dogma. This meansthat a mortgage borrower is obligated to pay whatever he or she had agreed topay regardless of changed circumstances either of the borrower or the housingmarket.

The New YorkTimes reports that bankers “say that generously easing loan terms or reducingmortgages outright would only encourage homeowners who can pay to pretend theycan’t. It would also, the bankers say, send a dangerous message: a financialcommitment isn’t really a commitment.” Additionally, homeowners “who keeppaying their mortgages, even if their homes have lost value, reasonably wonderwhy neighbors who weren’t as responsible are getting help.” Behind both ofthese concerns is resentment that someone else might get something too easily(i.e., beyond that which is deserved and what one can get oneself). It is not avery laudable mentality, psychologically and ethically. In other words, it israther small. Even worse, bankers whothemselves received bonuses paid for in part from bailouts were keepingborrowers from also being bailed out. It is as if the financial crisis of 2008hit only one side of the ledger.

Shaun Donovan,the secretary of the Department of Housing and Urban Development, said that althoughthere is was a “nugget of truth” to the moral hazard argument, “only about 10or 15 percent of Americans who can still pay their mortgages try to walk awayfrom their debt. Most troubled homeowners, like the Katrina victims, aregenuinely hard up.” Accordingly, the bank bailout should have been oriented tothem. Had it been, the banks’ balance sheets would not have been toxic and “twobirds” would have been “killed” with “one stone.”

According to theNew York Times, the “specter of moral hazard haunts a basic tension in Americanlife: to what extent are people responsible for their own problems? The moretrouble you’re in, moral hazard suggests, the less we should help.” Thisrelationship is the inverse of what it should be. That is, moral hazard shouldnot apply as if survival itself were conditional. I am perhaps as innatelyAmerican as they come, being born and raised in the Midwest, or “heartland ofAmerica.” Even so, when I hear politicians or others refer to others’ survivalas somehow conditional (typically as based on a work history), I sense that theideological belief is distinctly American. I revolt at the sheerself-centeredness of the people expressing the view and I reject the validityof the claim itself. For a society in which survival is deemed to be inherentlyconditional (as defined by people whose survival is not an issue) is no societyat all. Put another way, if we all knew in the back of our heads that were weto fall on hard times and not be able to provide for our own shelter and foodwithout taking them from others (i.e., remaining in society), life for all ofus would be a little lighter and less existentially anxious. This is not to saythat everyone has a right to a t-bone steak once a week or a mansion. The moralhazard argument conflates these with sustenance needs.

If a person isseriously under water, the sheer depth naturally dwarfs any consideration ofculpability. If someone is barely breathing or starving, a natural sentiment ofsympathy orients others to the question of how the plight may be quicklyassuaged. I submit that the bailed out banker actively resisting any assistance for homeowners nearforeclosure has a rather unnatural “hardness of heart,” or hardness moregenerally. To make aid conditional wherebasic necessities like shelter, food and medical care hang in the balance is toapply moral hazard beyond its ken. This overreach operates at the expense ofhuman rights.

Essentially,applying moral hazard conditionality where survival itself is at issue forothers is to presume a godlike position for oneself. In other words, thepropensity to judge others’ extent of deservingness is premised onself-idolatrous pride. Given the nature of self-idolatry, it is no surprisethat bankers who have benefited themselves (as well as their banks) would applymoral hazard to their counterparties but not to themselves. The conditionalitydoes not apply to those bankers, whose lobby—which Sen. Durbin said ownsCongress—makes sure of it. The resulting asymmetry can be interpreted as areflection of the bias in the “self-reliance” and “government is the problem”default—a game-board that is tilted toward the rich because they can afford tobe self-reliant and scoff at government as part of any solution to societalills.

Ideally, asocial contract, and thus a society, should be in balance, with basic humanrights being beyond the reach of the inevitable swings in the political-ideologicalpendulum (i.e., the headwinds). Where the latter are definitive (andexclusive), sustenance needs, being an inherent human right, become valid outside of societal limits. In otherwords, where moral hazard is applied to basic shelter and food needs, peopleneeding them have the inalienable human right to take them without regard tosocietal rules bearing on them. Even in political theory, possession ofproperty is salient. Thomas Hobbes refers to the right of self-preservation asgoing beyond any law. Is extending moral hazard to cover necessities worthmaking society (and its laws) conditional?

Source:

Shaila Dewan,“Moral Hazard: A Tempest-Tossed Idea,” TheNew York Times, February 26, 2012. http://www.nytimes.com/2012/02/26/business/moral-hazard-as-the-flip-side-of-self-reliance.html

American Regional English: Vestiges of an Empire

2012-02-25T15:11:00.001-06:00

In 2012, a merefifty years after the project had begun, the fifth volume of the Dictionary ofAmerican Regional English (DARE) was finally done. Sadly, the project’sdirector, Frederic Cassidy, had died in 2000 at the ripe old age 90. “On to Z”had been his typical way of ending phone conversations. Visiting the dictionary’soffices some years ago—ironically to use their French dictionary—I had no ideaof the size of the project. Instead, I engaged a few of the staff on my thesisthat regional “Englishes” in the U.S. are only natural, given the empire-scaleof the republic of republics. In fact, I would argue that it is unnatural thatthere are not more linguistic differences from Maine across the continent andup to Alaska and over to Hawaii.

The E.U. is perhapsmore natural with its linguistic diversity. On the other hand, the Europeans mayhave gone to the other extreme. Not only is there a myriad of dialects evenwithin a given region, such as Normandy, in a state; the number of languages withinthe E.U. can give one the false impression that the E.U. is yet another U.N.—aninternational house of pancakes without any syrup. Even with theperhaps-exaggerated extent of linguistic diversity (given local pride) in theE.U., linguistic diversity is apt to be on the losing end of the homogenizingforces of technology, mass media, and “ever closer union” as the twenty-firstcentury takes hold after a few warm-up decades too reflexive of the previouscentury. Already by 2012, the increasing use of English in the E.U. means thatsuch English is properly “European English” rather than being identified exclusivelywith one state (i.e., Britain). That is to say, there are different regional dialectsof European English just as there are different regional dialects of AmericanEnglish.

In the U.S., thetendency toward an empire-wide lexicon has been facilitated greatly by thepolitical consolidation that had already been achieved beginning with the warbetween the CSA and USA. By the 1970s, there was essentially one empire-wideconversation. This can be seen in the efforts of the national news networks todirect “a conversation.” It is odd that “a conversation” would span an empirethat produces 25% of the world’s economic output and goes from the NorthAmerican coast of the Atlantic to some islands in the middle of the PacificOcean. Joan Hall, the director of DARE as of 2012, points to technology andglobalization as threatening American regional English. Her orientation to cultureignores the effects from the political consolidation. Put another way, sheviews the global and local as a dichotomy without considering the impact of thelevels in between.

Europeans countingon the existing linguistic diversity within the E.U. to thwart such convergenceas the U.S. had achieved since 1861 might want to remember that the process tooka century or so in the U.S. just to get started. The expanding use of Englishas a common language, particularly among the political, cultural and economicelites, and the homogenizing effect of technology on the mass media couldresult in the E.U. being like India—with a common language in addition to localor provincial languages. Clinging to the existing diversity, Europeans will notlikely see this change coming. Indeed, it may not fully arrive until thegeneration of children in 2012 have reached full-functioning adulthood. Theirreference point concerning European integration will doubtless be differentthan the ones in 2012.

Source:

JenniferSchuessler, “Regional Dictionary Finally Hits ‘Zydeco’,” The New York Times, February 25, 2012. http://www.nytimes.com/2012/02/25/books/dictionary-of-american-regional-english-reaches-last-volume.html

Limiting Bank Size: Crude But Advisable

2012-02-24T12:25:00.000-06:00

In February2012, Tyler Cowen claimed in the New York Times that people across thepolitical spectrum were “talking about splitting up America’s large banks.” Atthe time, I could discern no such talk, although this does not mean that it wasnot going on. As the Dodd-Frank financial reform law was being written in 2010,the option of splitting up banks like Bank of America, Goldman Sachs, and JPMorgan Chase was quietly but assiduously kept off the front burners. It isdifficult to believe that the big banks would have relaxed in their efforts torelegate such threats in early 2012 as if the passage of the legislation in2010 meant that more astringent options were no longer possible. In hisarticle, Cowen includes some other questionable claims. Reading between thelines, he seems to have been “playing by the rules” in support of the big guys.

Even as Cowennotes that “before its collapse, Lehman had acapitalization of about $60 billion, compared with the $143 billioncapitalization of JPMorgan Chase [in early February 2012],” he goes on to characterizebreaking up the biggest banks as penalizing size rather than failure. In doingso, he is conflating a regulation with the market mechanism. Whereas the latteris supposed to penalize failure, there is nothing wrong with a regulationlimiting size, as it is often correlated with market (and political) power atthe expense of competition (and democracy). Moreover, limiting size is not to penalize it. As Cowen himself admits, “banksare usually wealthier, nimbler and smarter than their regulators, at least whenit comes to finding loopholes in the regulations or making their moves moreopaque.” Limiting the power of bankers by limiting their respective bank’sassets makes perfect sense in protecting the regulators from being undulypressured from their regulatees.

Furthermore,Cowen conflates bailing out a big bank with bailing out its parts after aspin-off as if a small bank failing were somehow as damaging as a big one goingdown. He argues that “if the resulting parts of a divided bank cannot turn aprofit, the split-up may prompt the very bailout it was trying to avoid.” Thisis not true, as “the very bailout” to be avoided pertains to that of the bigbank rather than any of its parts.

Cowen also assumes that the smaller banks would necessarily be bumping their headsagainst the maximum size allowed. He argues that “the incentives for the new,smaller banks would be unhealthy. Those banks could make mistakes or take onbad risks without being punished very much in terms of capitalization orrevenue, because of their legally capped size. Even if they made big mistakes,these banks would probably be pushing on the frontier of maximum allowedgrowth.” In other words, he assumes that a limit on size would somehow eclipseany remaining market mechanism. Perhaps he is assuming an overly astringentlimit, such as 50 employees. There is a lot of room for limits below a $143billion capitalization without eviscerating the market mechanism.

Infact, Adam Smith would doubtless maintain that a market with smallercompetitors functions better in terms of competition “rewarding” goodperformance and “penalizing” incompetence. It is as if we are so used tocorporate capitalism that we assume that Adam Smith’s version cannot work. Iwould argue that Smith’s version is actually superior with regard to the marketmechanism. Because that mechanism can “freeze up” rather than price-adjust foradded risk, we should not rely exclusively even Smith’s competitive market. Giventhe downsides of the market mechanism itself, limiting the size (and thuspower) of the participants is certainly justified. It is not “penalizing size.”I do not believe that Cowen has a firm grasp on either the market mechanism orthe nature of government regulation.

Source:

Tyler Cowen,“Break Up the Banks? Here’s an Alternative,” The New York Times, February 11, 2012. http://www.nytimes.com/2012/02/12/business/making-shareholders-liable-for-big-banks-economic-view.html?scp=1&sq=%2520%25E2%2580%259CBreak%2520Up%2520the%2520Banks?%2520Here%25E2%2580%2599s%2520an%2520Alternative%25E2%2580%259D&st=Search

The Fed as a Regulatory Agency

2012-02-22T17:52:00.002-06:00

According to theWall Street Journal, the Federal Reserve “has operated almost entirely behindclosed doors as it rewrites the rule book governing the U.S. financial system.”The paper notes that this has been in sharp contrast to the trend at the Fedtoward greater transparency in its interest-rate policies and emergency-lendingprograms. The complaint of a dearth of public meetings misses, however, notonly the scripted nature of such displays, but also the more fundamentalquestion of whether a central bank buffered from political pressure should playsuch a salient role as regulator. At the very least, the democratic deficit anda lack of accountability may be exacerbated by the Fed’s greater role as aregulator of banks—particularly after the major investment banks becomecommercial banks, and thus subject to the Fed’s regulations.

“While manyAmericans may not realize it,” the Journal continues, “the Fed has taken on amuch larger regulatory role than at any time in history. Since the Dodd-Frankfinancial overhaul became law in July 2010, the Fed has held 47 separate voteson financial regulations.” This was as of February 22, 2012. In the process,the Fed was “reshaping the U.S. financial industry by directing banks on howmuch capital they must hold, what kind of trading they can engage in and whatkind of fees they can charge retailers on debit-card transactions.” Unlikeother regulatory agencies, not even the Fed governor’s votes were made public.Considering the contact that Fed officials had with their regulated banks onthese issues and the Fed’s ties to banking itself, the lack of public meetings(only two on the 47 votes) suggests an opportunity for a conflict of interestto operate below the radar in the interest of the banks while the public holdsthe risk.

On the VolkerRule, which is the part of the Dodd-Frank law that prohibits banks fromproprietary trading using their own funds because doing so is too risky for abank too big to fail, Fed officials met with bankers at JP Morgan Chase sixteentimes, Bank of America ten times, Goldman Sachs nine, and Barclays and MorganStanley seven each. On the Dodd-Frank provision on regulatingderivatives—something a dissenting Fed governor claims has exemptions that aretoo wide—Fed officials met with JP Morgan Chase fourteen times, Deutsche Bankand Goldman Sachs twelve each, and Bank of America, Barclays, Morgan Stanleyand Wells Fargo eleven each. Even just in relying on these banks forinformation and feedback, the Fed risks getting biased input on which to makejudgments.

Bank of America,for instance, may insist that it must trade on its own books or it will fail.Other things equal, a Fed governor would vote against the Volker Rule. MorganStanley may insist that the regulation of commodity derivatives would putfarmers who rely on the futures market at risk. Moreover, the bankers couldinsist that an exemption would not be abused, or they could coordinate theirown pressure with a farming lobby and U.S. senators from farm states. Thebankers’ intent is obviously to minimize the cost to them in the regulationsthat are put in place. The public interest, or risk to the public, is besidethe point.

The banks playeda similar role in the late 1990s as they lobbied the White House and Sen. PhilGramm to keep derivatives unregulated. That unseen monster winded up biting usin the ass in 2008. Therefore, putting the public interest at risk is not justpart of some theory; giving the regulated too much influence in the writing ofregulations involves a conflict of interest that can literally result in thecollapse of the global financial system. A public-levelperspective, rather than that of a firm or industry, must be primary amongregulators or the system itself is put at risk.

Pointing to thelack of public meetings in the Fed’s approach as a regulator, Sheila Bair,former chair of the FDIC, stated, “People have a right to know and hear thediscussion and hear the presentations and the reasoning for these rules. All ofthe other agencies which are governed by boards or commissions propose andapprove these rules in public meetings.” Fed officials point out that openmeetings tend to be scripted and even perfunctory. As if to state goodintentions are sufficient, Fed chair Bernanke said in a 2010 speech, “As anagent of the government, a central bank must be accountable in the pursuit ofits mandated goals, responsive to the public and its elected representativesand transparent in its policies.” However, a central bank is closer to itsbanks in many ways that it is to the public or its elected representatives. Infact, a central banks is supposed tobe buffered from political influence. While this makes sense in terms ofmonetary policy, regulating is a separate function and a democratic deficitthere is problematic.

I think thepublic meeting issue is a red herring. The real problem lies in a central bankgoing beyond monetary policy and acting as a bank for the banks to also be aregulatory agency. That the Fed’s regulatory process differs from those of the“real” agencies suggests that the Fed officials do not even seen the Fed assuch an agency. As Bernanke said, “a central bank is . . .” This is the Fed’sidentity. It is distinct from a regulatory agency. Accordingly, Congress shouldestablish a separate regulatory agency to cover the banks, leaving the Fedofficials to concentrate on their core functions in operating a central bank.It is not as if Bernanke “got it right” leading up to September 2008. Even in2007, he did not think the declining housing market would cause much of aproblem. He had no idea that the swap and derivative markets were about toimplode. This is not a good basis on which take on additional responsibilities,particularly writing new banking regulations. In other words, it is not likemuch would be lost were banking regulation written and enforced by a regulatoryagency rather than the Fed. In addition, such an agency would not be so closelytied to the banks as the Fed is, as hinted at by its myriad of meetings withthem. Such an agency would not be explicitly distanced from political pressureas the Fed is.

There is nothingwrong with elected lawmakers and executive branch officials making sure thatthe laws they have passed and are enforcing, respectively, are beingoperationalized and enforced by regulators who keep the public interestforemost in mind. As a central bank, the Fed is neither under the U.S.President in the executive branch nor under Congress. Meanwhile, Fed officialsare very close to the banks they regulate. The problem of accountability thatis in the Fed’s independence from the two branches added to the conflict ofinterest of the Fed being so close to the banks it regulates sets the public upfor the sort of thing we saw in September 2008. That crisis did not come out ofnowhere, and the reasons for it go beyond the housing market. At the veryleast, relying so much on an “agency” (and chair!) that failed to anticipateSeptember 2008 and then geared a bailout to the banks rather than to themillions of foreclosed borrowers (hint: conflict of interest!) to write andenforce additional banking regulations on an industry that does not want themis beyond stupid; it is suicide. Meanwhile, the issue is presented as one ofpublic meetings, which are scripted anyway and do not prevent the Fed frommeeting with its bankers.

Are we really so superficial andnarrow-minded? Quoting from Forest Gump, stupidis as stupid does. Hearing that line several times in the movie, I finallythought to myself, that makes absolutely no sense, but then, well, maybe I’mjust stupid. If so, at least I’ve got lots of company in the Wall StreetJournal—or maybe it is incredibly smart for the financial press to “sidebar”the issue to public meetings while the Fed, which is close to the banks (havingeven allowed bonuses amid bailouts), continues in the driver’s seat as bothcentral bank and the (non-executive branch) banking regulatory agency. Maybe stupid is as stupid does applies to therest of us. It is definitely the prefect motto for my hometown, whose hockeyteam is suitably called the Ice Hogs.

Source:

Victoria McGraneand Jon Hilsenrath, “Fed Writes Sweeping Rules From Behind Closed Doors,” The Wall Street Journal, February 22,2012.

http://online.wsj.com/article/SB10001424052970204059804577225122892450312.html

Germany’s Wulff Toppled While Wisconsin’s Walker Fights On

2012-02-22T17:28:00.000-06:00

At the beginning of 2012, Wisconsin and Germany were both suffering from the plight ofcompromised figureheads. In the case of Wisconsin, the figurehead is also thechief executive, whereas in Germany they are distinct offices, so the situationin Wisconsin was more intractable. Germany’s figurehead office has much lesspolitical power, so any occupant is more dependent on maintaining credibilityand stature.

In Wisconsin,Scott Walker faced a petition for a recall vote. Assuming Walker is recalled,the vote would be followed by an election for the office. Even if recalled, hecould be a candidate in that election. Wisconsinites could vote to recall himthen conceivably vote him back into office. Because recall pertains to a dulyelected incumbent, the bias in the procedure is to respect the result of theelection (i.e., “elections matter”). This bias makes sense in the case of therecall movement against Walker because it was not predicated on scandal or anycharge of illegality against him. The recall is not an impeachment. Rather, themovement was in reaction to a piece of legislation that Walker had supportedthat took away some bargaining rights of the government employees’ union. Thelaw’s intent was to help reduce a $3 billion projected budget deficit in 2011.Walker did manage to balance the budget, with help from the law to enabled thegovernment to save money on public employees.

Opponents of Walker gather as the recall petitions are turned into the government.
Tannen Maury/European Pressphoto Agency

In terms of therecall, the issue is thus whether the four year term of Walker’s office asfigurehead and chief executive of Wisconsin should be cut short because ofdisagreement with a law that Walker signed. In other words, the matter is notan impeachable offense; rather, the question is whether the popular sovereign—thepeople—should have the right to circumvent one of the hallmarks of a republic(i.e., representative government): the fixed term of office, which is meant toprotect the officeholder from the popular passions of the moment in order tomake difficult decisions. Put another way, if it were easy to recall an electedrepresentative, none would be likely to make the difficult decisions that welook to be made for our own good. While valid from the standpoint of directdemocracy, easy recall undercuts what distinguishes a republic.

In Germany,Christian Wulff was facing a vote from the legislature removing “immunity fromprosecution” from his figurehead office. On February 17, 2012, with the SPD andGreen parties having come out in favor of making Wulff subject to charges ofimproper ties to business executives, he resigned. The scandal first broke inthe previous December. It gained traction not only because of the special giftsthat Wulff had received while the executive of what is comparable to a countyin Wisconsin. Meanwhile, one of Scott Walker’s aids was being convicted ofcorruption from when Walker was the executive of a county in Wisconsin(Milwaukee county). The immediate difference is that Walker was not implicatedwhereas Wulff was (by the Hanover prosecutor’s office). I would add that Walkercould make use of the political power that came with his authority as the chiefexecutive whereas Wulff had no such power and thus succumbed to the pressure byresigning. In both cases, the man at the top was compromised and this in turnimpacted the respective states dramatically. Because of the “dual” nature ofWalker’s office, Wisconsin faced a prolonged fight over Walker in 2012 whereasGerman parties already settled on a new figurehead just days after Wulffresigned. It might be wise of Wisconsites to consider splitting the head officeinto two—one a figurehead and the other the leader of the majority party in thelower legislative chamber. Wisconsin would still be a republic.

I refer toWisconsin and Germany as states bothin the sense of having a government and in being states in unions of states.That is, both republics were at the time semi-sovereign; the U.S. and E.U.taking up the rest of the governmental sovereignty, respectively. This basis ofcomparison is typically undercut. For instance,Nicholas Kulish of the New York Times writes of Wulff that the “scandal firstemerged in December with the news that [he], while serving as governor of thestate of Lower Saxony, had taken a private loan from the wife of a wealthyfriend worth about $650,000.” However, there is no such office as “governor” withinGermany. The Wisconsin office of governor applied to Germany would be tocombine the figurehead and chief executive (or chancellor) offices (i.e., Wulffand Merkel) of the German government. Furthermore, Lower Saxony is a Land, not a Staat. Translated into English, Landmeans land, region or territory whereas Staatmeans state. You can see how similar English is to German here. Auf Deutsch, the German regions arecalled Länder, nicht Staaten! Also ist es nicht richtig zu Lower Saxony “state”heissen.[so it is not correct to call Lower Saxony a state]. Lower Saxony is about thesize of a county in Montana, and Germany itself is the size of Montana. Inaddition to scale, both states (Germany and Montana) are semi-sovereign statesin unions that in turn have some governmental sovereignty. It would be utterlymisleading of a European to refer to Scott Walker as having been the governorof the state of Milwaukee in Wisconsin, but this is how Kulish describes Wulff asthe executive of Lower Saxony in Germany. Dasist seltsam. (This is strange).

Germany is notin itself a United States of Europe. Nor for that matter is Britain or France,even though they are large states in the E.U. Neither for that matter isCalifornia or Texas a United States. These are all semi-sovereign republicsthat are member states of comparable scale (though not in population thoughclusters relative to the populations of the two unions) in unions also ofcomparable scale (and population) and with both political and economic aspects.Considering Kulish’s “report,” it is no wonder that the category mistakesurvives as the default. It would be more accurate of me to refer to Merkel,Sarkozy and Cameron as governors (i.e., executives of states in the E.U.) thanfor Kulish to refer to Wulff as having been the governor of a region of one ofthose states. Any American state could itself have a federal system.Considering the cultural differences within Wisconsin (e.g., Madison vs. Reinlander—itself a Land or resembling the Länder along the Rein?)—not to mentionIllinois and California each being incredibly diverse internally—giving theirrespective Länder some autonomy mightnot be a bad idea. Calling the regional or county executives “governors” andthe regions or counties themselves “states” would be utterly misleading, asboth terms refer to polities that are members of empire-level unions and yetare comparable in scale and government to independent states in the world.

In the cases ofWisconsin and Germany, correcting for the category mistake, we can say that thepolitical risk in the credibility of Walker and Wulff being undercut orweakened in late 2011 was mitigated by the fact that both republics are statesin unions of such states. In other words, Wisconsinites did not have to countonly on the government of Wisconsin and Germans did not have to count only onthe government of Germany. Therefore, the recall and possible prosecution werenot so risky to political stability that they should not be undertaken for thatreason. It turns out that category mistakes really do get in the way inpolitical analysis, and that correcting them allows for insights that would nototherwise be possible.

Sources:

Nicholas Kulish,“German Chief Could Lose his Immunity,” TheNew York Times, February 17, 2012. http://www.nytimes.com/2012/02/17/world/europe/president-wulffs-immunity-challenged-in-germany.html

Melissa Eddy,“Merkel Backs Rivals’ Choice for President of Germany,” The New York Times, February 20, 2012. http://www.nytimes.com/2012/02/20/world/europe/former-east-german-activist-nominated-as-president.html

Monica Davey, “OrganizersSay 1 Million Signed Petition to Recall Wisconsin Governor,” The New York Times, January 17, 2012. http://www.nytimes.com/2012/01/18/us/organizers-say-1-million-signed-petition-to-recall-gov-walker-in-wisconsin.html

E.U. Presses Italy to Tax Church Businesses

2012-02-21T17:05:00.000-06:00

One of the chiefbenefits of federalism is the ability of one system of government to checkanother within the overall federal system. In the European Union, the stategovernments have so much power at the federal level—in the E.U.institutions—that it is difficult for the E.U. Government to check excesses andabuses in the state governments. E.U. law, regulation and directives rely onthe state governments, albeit to varying extents. In the United States, thecase is the reverse. The U.S. Government holds so many of the cards that thestate governments cannot act to check abuses in the federal government.Actually, for all of the power that the U.S. Government has amassed, it does ahorrible job in aiding citizens against abuses in their own state governments.Fortunately, we can look to Europe for a bright spot: the E.U. Commission andItaly, á grace de Mario Monti who isboth governor of the state of Italy and a former commissioner in the E.U.Commission (the E.U.’s executive branch).

For ten years until 2005, Monti was anantitrust commissioner at the E.U. Commission. In 2010, the Commission openedan inquiry into whether tax exemption for the Roman Catholic Church amounted toillegal state aid and a stifling of competition. Silvio Berlusconi ignored thereport, extending the church’s exemption from local property taxes even incases where the church was using its property for commercial (i.e., notcharitable) purposes. Monti, being a former commissioner, took anotherdecision. On February 15, 2012, he told the Commission that he would ask theItalian state legislature to pass legislation ensuring that the Church wouldpay property tax on the parts of its buildings used for commercial ends. TheChurch owns vast amounts of property in Italy (as well as in Spain). For churchbuildings that rent space to shops to be tax-exempt on religious groundsperverts the meaning of religion—effectively making it a tautology. The new lawcould result in revenues of $650 million to $2.6 billion annually, according tothe New York Times.

That Monti hadbeen an official at the federal level undoubtedly made him sympathetic to theCommission’s report, though he was also undoubtedly influenced by the mood ofausterity in his home state. In December, 2011, 130,000 people signed an onlinepetition calling for the Italian government to revoke the Church’s tax-exemptstatus for its commercial properties. Put another way, it was curiously noproblem of conscience for the Roman Church officials that commercial uses gountaxed while citizens suffer from austerity due to excessive state deficits.

Rather thanreligious conscience, federalism played the decisive role á grace de an official who had worked at both the federal and statelevels. As Berlusconi’s previous decisions make clear, however, it is notenough to rely on Monti’s past federal experience and his then-current stateoffice as governor or premiere for the benefit of federalism to operateconsistently. For a more solid federal basis, a shift of more governmentalsovereignty from the state to the federal level would be needed, for thechecking function of federalism requires the system itself to be balanced with respect to state andfederal power. Unfortunately, with state officials holding so much power at thefederal level in the E.U., achieving the requisite balance would mean having toovercome the conflict of interest of those officials—as it is in their personaland state interest to retain power rather than to give it away.

Sometimes we canbe blind to conflicts of interest. For instance, the New York Times ends itsarticle on this story by reporting that in a statement, the Italian BishopsConference wrote, “We are waiting to find out the exact formulation of the textto be able to offer a more precise opinion.” Given the bishops’ institutionalfinancial interest in continuing to be exempt from taxes, it is not difficultto guess what their opinion would be. Put another way, we ought not expectneutrality. Involving the bishops in the formulation of the legislation wouldnecessarily subject them to a conflict of interest. As they were not botheredin conscience in the first place, there is really no obligation to seek theiropinion anyway. In any case, the law would be imposed on them, rather than fromthem, so their input in crafting the law is not necessary or evenappropriate.

In generalterms, parties with a vested interest in a piece of legislation not beingpassed should not be considered viable participants in the process. A party ina conflict of interest being in a position to weaken or even kill a bill can beobviated simply by taking the common sense position that writing a law does notextend to parties that can be expected to oppose the law itself. Similarly, inbaking a cake, a person doesn’t ask, “Ok, now, everyone who hates cake anddoesn’t think any should be baked: come and help me bake it.” That would be arecipe for disaster. Of course they would scuttle it. It is better to announce,“Ok, anyone who wants a piece of cake: come and help me bake it!” The volunteersin this case would not be likely to slip plaster power in the mix. In fact, youmight even get some pretty darn good cake out of it.

We human beingscan be so naïve. Whether in writing a new law on the state level makingcommercial property owned by a religious organization taxable or in writing anamendment at the federal level reducing the power of the state governments atthe federal level, people should not be so naïve—or self-defeating—in lettingpeople we know from the outset are defeatists into the kitchen. Even so, WallStreet practically wrote the Dodd-Frank Financial “Reform” Act of 2010 in theU.S. and then heavily lobbied on the ensuing regulations (e.g., the VolkerRule). This goes beyond people who don’t like cake doing the baking to embracethe wolf guarding the hen house. Honestly people. We should know better.

Source:

Rachel Donadio,“Italy Plans to Tax the Church on Commercial Property,” The New York Times, February 17, 2012.

http://www.nytimes.com/2012/02/17/world/europe/italy-sets-tax-on-church-property.html

Sarkozy’s Electoral Campaign: Not for the U.S. Presidency

2012-02-20T18:03:00.000-06:00

On February 15, 2012, France’s PresidentNicolas Sarkozy formally announced his intent to file as a candidate for theoffice in what would be his second term. The announcement took place just overtwo months from the election (April22nd). If no candidate wins an absolutemajority, the two top candidates would be on the ballot in a runoff held on May6, 2012. The European sense of a decent length for a campaign “season” could betaken to heart by Americans.

For example, as Nicolas Sarkozy wasundergoing two or three months of campaigning in France, Scott Walker had beencampaigning for months already in Wisconsin, well in advance of a recallelection that could still be six months away. I suspect that generallyspeaking, the campaigns in the U.S. states are much longer in duration than inthe E.U. states. Perhaps Europeans are less tolerate of excess, or more willingto “just say no.”

Comparing a state-level campaign seasonwith the election of an office at the empire-level (i.e., of a Union of suchpolities) is problematic. For one thing, at the E.U. and U.S. level, the statesthemselves would expect to have a say. Hence, primaries and caucuses tonominate a party candidate for the office of the President of the United Statesare by state. This involves several problems, such as what to do if a statevoting later has a narrowed range of possible candidates from which to choose.Having every state nominate on the same date, with a run off a week or twolatter, would be an improvement, but it would take away the distinctiveness ofthe states—something Europeans appreciate.

The American Electoral College, whereinelectors vote for the President of the United States by state (literally in thecapitols), is also not convertible into elections at the state level. It wouldmake no sense to apply such a mechanism to a state itself (i.e., voting bystate). My more general point is that it is hazardous to compare state andfederal electoral politics and processes because the nature of a federal uniondoes not apply to a particular state thereof. Yet this is typically ignored andI’m sure many people are trying to compare Sarkozy’s campaign with that ofObama.

This raises a much larger point: what todo with a societal category mistake that has become the legitimate default. Thehuman proclivity of ignorance to presume that it cannot be wrong onlycomplicates the matter of correction. Treating the U.S. as if it were a statein the E.U. with a large backyard conflates apples and oranges. Moreover, theerror involves treating an empire as if it were on the kingdom level (i.e., apart of itself). It is like treating one person in his entirety as if he wereequivalent to another person’s arm. The problems with such a comparison becomeclear once clothing is considered. What covers your arm is not going to covermy entire body, and going with it in January in Wisconsin or Wyoming would bedangerous. Similarly, it is dangerous to a polity to disregard what it is andtreat it as if it were something else.

Therefore, although the U.S.Presidential campaign “season” (now two years!) is entirely too long and is inurgent need of reform, it would be a mistake to look at Sarkozy’s announcement,coming just two months before of his election, as a basis of comparison.Perhaps it is because empire-level federal unions of states have added elements(as well as scale) that complicate (and thus extend) the selection process ofan empire-wide office such as the Presidency of the United States that theEuropean Union has so far decided not to have an elected president. Given thenature of the level and scale of the E.U. and U.S., there is a lot to be saidof the proposals in the U.S. Constitutional Convention wherein statelegislatures or chief executives select the U.S. President. As it is, the U.S.House of Representatives, voting by state, elects that office where nocandidate has an absolute majority of the electors in the Electoral College.Because the delegates in the convention thought it unlikely that any one personcould be so well-known even in the empire of 13 republics, I suspect that theypresumed that most presidents would be elected by the democratically-elected federal representatives, voting by stateas the U.S. is a union of states (i.e., the states being members too).

No one would be happier than me were theAmerican presidential election reformed to have a two or three month campaignseason, but given the fundamental difference between the U.S. and E.U. on theone hand and their respective states on the other, we could expect problemsbecause a category mistake would be involved. For instance, two months giventhe empire scale would mean that grass-roots campaigning would be virtuallyimpossible; the television media would be the conduit, and perhaps with unduemanipulation from the funded-pundits and media “personalities.” There is areason why in traditional federal theory, officials of the states select theempire-wide office holders. The state officials themselves having been elected(after a two month campaign!), their involvement would not be at the expense ofdemocracy. In fact, it would heighten public attention on the state-levelelections, as is the case in the E.U. Put another way, were the E.U. to have anoverall president (rather than one of a given institution, such as the EuropeanCouncil), I doubt it would be a simple election decided only by the E.U.citizens as a whole. That would be to conflate the E.U. with one of its states.See what I mean? If so, you will see the mistake being made over and over againas a matter of course, as a generally accepted default rather than a grosserror. Welcome to my world.

Source:

Gabriele Parussini and DavidGauthier-Villars, “Sarkozy Launches His Bid for New Term,” The Wall StreetJournal, February 17, 2012. http://online.wsj.com/article/SB10001424052970204880404577224793514483690.html

UN’s General Assembly as Nonbinding on Syria

2012-02-19T09:41:00.000-06:00

According to theNew York Times, “In a powerful rebuke to Syria’s government, the United NationsGeneral Assembly voted overwhelmingly on [February 16, 2012] to approve aresolution that condemned President Bashar al-Assad’s unbridled crackdown on an11-month-old uprising and called for his resignation under an Arab League peaceproposal to resolve the conflict.” The reporter immediately undercuts his useof powerful by observing that the137-12 vote (with 17 abstentions) is “a nonbinding action with no power ofenforcement at the world body.” The “action” does represent “a significanthumiliation” for Assad. I doubt very much if he felt humiliated. His UNambassador “denounced the resolution as a politically motivated scheme tointervene in Syria by the Western powers and others who ‘would like to settleaccounts with Syria.’” Altogether, the first two or three paragraphs ofGladstone’s article can be read in terms of logic as “X, not X.” Of course, thefirst X gets more attention, so the article gives the impression that the UNdid something powerful when in fact the exercise was one of exposing theimpotence of the world body.

That theresolutions of the General Assembly are nonbinding even for the UN is perhapsthe epitome of self-emasculation. That the Security Council, on which just afraction of the UN’s 193 members sit at any time, could have resolutionsbinding on the UN while the GA, on which every member sits, is allowed onlynon-binding “actions” suggests a democracy deficit in the UN itself—or at thevery least a serious problem of priorities. The UN would have more legitimacywere its resolutions that are binding on itself voted on by all of themembers—none of which having a veto and thus able to dominate the world body.This change would hardly be earth-shattering, as even “binding” resolutionshave trouble finding enough respect to be acted on unless by certain membershaving a strategic geo-political interest in “volunteering” on the enforcementend. It is striking how Assad’s government can kill over 5000 citizens—whomGladstone curiously refers to as “an uprising” as if Assad had met rather thanled with weapons—and still be a valid member of the UN. I’m not convinced thatunconditional love should apply to the organization that has a declaration ofhuman rights, after all.

Therefore,rather than being “powerful” or “humiliating,” the nonbinding resolution of theUN’s General Assembly makes transparent just how bad that world body’s inherentflaws are. This conclusion is utterly hidden in the title that Gladstone wentwith: “General Assembly Votes to Condemn Syrian Leader.” A better, morerealistic title would have been: “A lot of UN members mad at SyrianGovernment.” Let’s not gild the lily. With global warming and nuclearproliferation each being a viable threat to the continuance of our species, notto mention ourselves in particular regions, we can no longer afford to rely onthe UN.

I envision a newworld body with a General Assembly capable of enacting resolutions that arebinding for still-existing members, none of which has a veto, and a SecurityCouncil consisting of rotating members that meets only to handle emergencies(again, no veto). The GA would be authorized to instruct the Security Councilhow to implement enforcement, using members as it will. Of course, countrieswould be free to leave the body and face isolation with respect to the benefitsthat membership provides. Behind this new organization is the realization thatour species has stepped onto new land in the twenty-first century. This is notexactly a brave new world of terra firma(the frozen tundra melting in fact). We as a species now know that we can putour entire lot at risk.

We are evenbeginning to suspect that the historical absolutist interpretation of nationalsovereignty is now too dangerous, given what damage we can inflict on eachother and on our species itself. Even for people not buying into this “new era”thinking, it must be obvious that the UN is an embarrassment and an utterfailure with respect to protecting human rights and even ourselves fromourselves. Even just on the surface, a resolution that is non-binding even forthe body that does the resolving suggests that the body itself is seriouslyflawed and deserves to be replaced. Yet as apparent as this reasoning may be,politicians are typically creatures of the status quo and won’t likely make apeep—preferring instead to cite Gladstone’s report of the “powerful rebuke.”Both the rebuke and Gladstone's characterization evince a case of the blind leading the blind. The beguiled followers blindly put still more clothes on the emperor whilecongratulating themselves on such a fine appearance having been achieved. “Itlooks good to me,” one blind man says to another. “I quite agree,” the otherreplies. All the while, the world sleeps, dreaming that it is wide awake.

Source:

Rick Gladstone,“General Assembly Votes to Condemn Syrian Leader,” The New York Times, February 17, 2012. http://www.nytimes.com/2012/02/17/world/middleeast/secretary-general-ban-ki-moon-castigates-syria-ahead-of-general-assembly-vote.html

Gay Marriage in New Jersey

2012-02-17T19:54:00.000-06:00

Just afterNew Jersey’s legislature passed a law legalizing gay marriage, Gov. ChrisChristie followed through on his promise to reject the bill by quickly vetoingit and renewing his call for a ballot question to decide the issue. Inreturning the bill to the Legislature, Christie reaffirmed his view that votersshould decide whether to change the definition of marriage in New Jersey.
"I amadhering to what I've said since this bill was first introduced – an issue ofthis magnitude and importance, which requires a constitutional amendment,should be left to the people of New Jersey to decide," Christie said in astatement. "I continue to encourage the Legislature to trust the people ofNew Jersey and seek their input by allowing our citizens to vote on a questionthat represents a profoundly significant societal change. This is the only pathto amend our State Constitution and the best way to resolve the issue ofsame-sex marriage in our state.” Why stop at issues requiring a constitutionalamendment? Although technical legislation requires representatives to wadethrough and discern specific ramifications pro and con, broad policy questionscould also be subject to binding referendums.That is to say, representatives could be seen as doing only what the electoratecannot viably do.

Whetherenacted by a legislature or by direct democracy, a law that takes basic rightsaway from a minority such as gays could be illegitimate even though passeddemocratically. According to the New York Times, Democrats in the New Jerseylegislature argued “that same-sex marriage is a matter of civil rights, andthat civil rights should not be subject to referendum.” In other words, there are limits even todirect democracy, and the courts have a legitimate role in interpreting whetherindividual rights have been inordinately oppressed by the will of the majority.

In terms oflegitimacy, passing gay marriage by referendum is the most legitimate, andwithout any need for the courts to step in to look at the matter of individualrights. Next legitimate would be such a law passed by a legislature. Again, thejudiciary would not need to look at whether a minority is being tyrannized by amajority. Where a referendum or legislature passes a law or constitutionalamendment forbidding gay marriage, as in 30 of the American republics at thetime of Christie’s action, the democratic rights of a majority are pittedagainst the civil rights of a minority. Courts could look at existingconstitutional articles to assess whether an amendment is constitutional.However, it is conceivable that such articles could be changed such that anamendment that refuses the right of a minority could not be touched by a court.

To takeanother example, all of the federal and state constitutional articles thatprohibit slavery could be repealed and a new amendment making the practicelegal would make it constitutional. No court could touch it because courts arelimited to interpreting constitutions.In the case of gay marriage, the current equal protection language could beused to declare a federal amendment barring gay marriage unconstitutional. Whatif the due process language were changed by amendment and an anti-marriageamendment added? The U.S. Supreme Court could be forced to defend the newamendment if nothing else in the U.S. constitution could render the additionunconstitutional. Where the amendment is to a state constitution, planks fromthe federal constitution could be used, as was the case in California onProposition 8 a week or two before the New Jersey legislature passed gaymarriage.

From this “casestudy,” we can take away the following points:

1. On matters of broadpolicy, in which ideological judgment is more salient than technical knowledge,direct democracy is more legitimate than representative democracy. Such policyneed not be limited to matters requiring constitutional amendment. InvadingIraq and extending the federal debt ceiling are two cases in point.

2. The majority acting to protect minority rights by legislative means or a referendum is the best case scenario in a republic because no constitutional interpretation by judges is necessary.

3. Where legislationor a referendum bars a minority from exercising a right, the legitimacy ofmajority rule is pitted against that of individual rights. Accordingly, thejudiciary has a legitimate interpretive role as such matters must be judged.

Sources:

KateZernike, “Gay Marriage, Passed, Awaits Veto by Christie,” The New York Times, February 17, 2012. http://www.nytimes.com/2012/02/17/nyregion/veto-awaits-new-jersey-bill-allowing-gays-to-wed.html

AngelaSanti, “New Jersey Gay Marriage Bill Vetoed By Chris Christie,” The Huffington Post, February 17, 2012. http://www.huffingtonpost.com/2012/02/17/new-jersey-gay-marriage-b_0_n_1284641.html

Democracy and State Governments at the E.U. Level

2012-02-17T18:06:00.000-06:00

In mid-February 2012, Mario Monti of the E.U. state of Italyaddressed the European Parliament. In his speech, he advocated increasing the legislative body's power. The Parliament's 754representatives represent E.U. citizens just as the members of House of Representativesrepresent U.S. citizens. The representatives in both of the legislative chambersare democratically elected to represent the people in local or regionaldistricts rather than states more generally. The chambers are “national” inthat they bypass the state governments. The latter are represented in theEuropean Council of Ministers and in the U.S. Senate, both of which arelegislative in nature and thus can be stylized as the “upper chamber” infederal lawmaking.

Whereas the state ministers sitting inthe European Council of Ministers may be elected or appointed, the federalrepresentatives in the European Parliament are elected. Moreover, the Councilrepresents the state governments, which themselves have elected offices,whereas the European Parliament represents the people directly. So of the twochambers, the Parliament is more democratically legitimate at the federallevel. In 1913, the American states modified the U.S. Senate to make itsmembers also democratically elected rather than appointed by state governments,so the “democracy” difference between the two chambers in the Congress is less.Even so, the U.S. senators still technically represent the state governmentsand are therefore obligated, albeit informally, to consider their interestseven at the expense of the electorate.

Monti was comparing the democratic basisin the European Parliament not with the “upper chamber,” but, rather, with theE.U.’s executive branch (not “arm,” as New York Times reporters like toimagine), the European Commission. The commissioners are appointed, thoughconfirmed by the European Parliament. Still, the democratic basis of the E.U.’sexecutive branch is weak, if not non-existent. Even in spite of theCommission’s power, Monti opined, “I think it’s deeply possible to reconciledemocracy with greater integration.” To do so, he said the power of theParliament should be increased. He observed that state governments rather thanthe Commissioners had pushed the E.U. into its debt crisis. Greece, he said,“has been for quite some time the perfect album of the worst kind of politics .. . with corruption, nepotism, absence of competition and tax evasion.”Meanwhile, Germany and France were taking advantage of the power of the stategovernments at the E.U. level to violate the Stability and Growth Pack byamassing deficits over 3.5% of GDP. Italy held the E.U. Presidency at the timeand thus was complicit, Monti admitted.

It strikes me that similar charges wereleveled against state governments in the U.S. as delegates in theconstitutional convention of 1787 debated whether to strengthen the power ofthe confederation at the expense of the states. Making the U.S. senatorsdirectly elected by the people of the respective member states in 1913 had alot to do with corruption in the state governments. Even in 2008, the chiefexecutive of Illinois tried to sell the senate seat vacated by Barak Obama andwas subsequently sentenced to 12 years in prison for doing so (as well as otherthings). The European Union may be reaching the same sense: namely, thatperhaps relying on the chief executives of the states to run or dominate theE.U. institutions is not such a good idea.

In addition to calling for greaterdemocracy at the E.U. level, Monti would have been consistent in advocatingthat the state governments have less power there. Increasing the power of theEuropean Parliament at the expense of the Commission would not accomplish thisbecause the state governments are not represented in either body. The power ofthe European Council, which the Wall Street Journal incorrectly labels as theE.U.’s second legislative chamber, would have to be reduced (with the vetogiven up to qualified majority voting) because that is where the chiefexecutives have most of their power at the E.U. level.

The European Council acts as the E.U.’sfigure head, setting the future direction of the Union through broad policy andproposed amendments. To be sure, the body, which consists of “governors” inAmerican terms, also votes on broad measures, but it is the Council ofMinisters, which is also constituted by state officials, that handles thegritty legislative business with the Commission and the Parliament. In otherwords, the European Council meetings are commonly referred to as “summits,”whereas the Council of Ministers meets on domain-specific areas of legislation(e.g. education ministers meet to vote on E.U. laws, rules or directives oneducation) specifically to pass laws. The Council of Ministers represents thestate governments legislatively at the E.U. level, while the Parliamentrepresents the E.U. citizens. Because both the European Council and the Councilof Ministers represent the state governments, the latter have too much power atthe E.U. level. Making matters worse, the use of the veto on some areas (andjust to propose an amendment) gives any one state inordinate power. The resultcan be gridlock, or the protection of particular local interests at the expenseof the whole.

In short, while Monti made a good pointon the need for greater democracy, he could have completed his point by addinga few suggestions on how the influence of the state governments at the federallevel could be reduced. Given its vested interest (as a major payer), Germanyshould not have been allowed to have so much power at the E.U. level on whatGreece must do to meet the next bailout payment. At the very least, a conflictof interest is involved in having one state use the Union to dictate terms toanother state. Even the unelected E.U. Commission would have had morelegitimacy in making the decisions on this point. This raises the problem ofhow the states would ever agree not to veto reducing their own power. That isto say, there is a conflict of interest in the states having a role in decidingwhether they should have less power at the E.U. level. Such an amendment shouldbe handled by the Parliament and put to the people directly in an E.U.-widereferendum. That should please Monti’s view that there should be moredemocratic legitimacy.

Source:

Christopher Emsden, “Italy’s LeaderWarns E.U. Needs Better Democracy,” TheWall Street Journal, February 17, 2012. http://online.wsj.com/article/SB10001424052970204792404577225221847051672.html?mod=googlenews_wsj

Sanctity of Contract Breached on Mortgages

2012-02-16T16:27:00.002-06:00

According to the New York Times, an audit by San Francisco county officials of about 400 foreclosures “determined that almost all involved either legal violations or suspicious documentation. . . . The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership. . . . About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.” The problem seems to be systemic, suggesting that judges should be able to modify mortgages on the basis of nullified contract.

The report came just after “the $26 billion settlement over foreclosure improprieties between five major banks and 49 state attorneys general.” As the San Francisco analysis points out, “the settlement does not resolve most of the issues this report identifies nor immunizes lenders and servicers from a host of potential liabilities.” Bankers have not been oblivious to the value of being protected, as banks require buyers to sign holding the institution harmless if questions arise about the validity of the foreclosure sale. In other words, the bankers have wanted to be able to rely on sanctity of contract even when they have violated the law of contract. Phil Ting, the San Francisco assessor-recorder, argues that the depth of the problem raises questions about whether at least some foreclosures should be considered void. “It is very apparent that the system is broken from many different vantage points.” For the banks to insist on sanctity of contract nonetheless should be rejected. The banks should be held accountable in spite of their signed forms of protection.

Source:

Gretchen Morgenson, “Audit Uncovers Extensive Flaws in Foreclosures,” The New York Times, February 16, 2012. http://www.nytimes.com/2012/02/16/business/california-audit-finds-broad-irregularities-in-foreclosures.html?_r=1&ref=todayspaper

Scholars as Strangers in Academia: Amnesia at UCSF

2012-02-15T21:15:00.000-06:00

Susan Desmond-Hellmann formerly ranproduct development at Roche Holding AG’s Genentech. That was apparently therequisite experience for her to become the chancellor of the University ofCalifornia at San Francisco. She herself admits that such a background isunusual, even for a campus of schools of health and biomedical sciences. In2011, she engineered a partnership with Pfizer worth up to $85 million overfive years. This should be no surprise, as the Wall Street Journal reports thatshe has been known to draw heavily on her business experience to chart theuniversity’s future—even lecturing students about product development. Sheviews her role as one of sharing the business knowledge she had gained so theprofessors could be more entrepreneurial.

“What do you tell professors who won’twork with drug or biotech companies?” she was asked by the Journal. “I thinkthat’s a huge mistake. If you are a professor now, and you want to get yourdiscovery to society, you either need to start a company or work with a companyto commercialize a product.” She dismissed the scholars’ concerns about theinherent conflict of interest by relegating them as reactions to societythinking that corporations are evil.

Susan Hellmann at UCSF Darcy Padilla/WSJ

It apparently made no difference toSusan Hellmann whether she is herself a scholar as she was dismissing theprofessors’ concerns. Even the way she views being a professor—as beingmotivated to get one’s discovery to society—demonstrates that she did notunderstand what it means to be a scholar. Even in science, scholars do notregard themselves as product development entrepreneurs—not by a longshot. ThatSusan Hellmann does only points to the fact that whomever hired her had made arather serious category mistake—hiring a business practitioner to make academicpolicy. Being a manager in industry does not qualify one to be a scholar, andit does not justify remaking scholars into entrepreneurs. At a university,management is under academics, whereas Hellmann renders academics as management.

Essentially, under Susan Hellmann UCSFwas set to be a “science park” for Pfizer and whatever other drug companiesmight “invest.” The educational legitimacy has already been compromised—just inhow she viewed scholars (i.e., as entrepreneurs). This case study in turn illustrateswhat can happen when money (and business more broadly) come to be the definingcriterion for a society. Things that are not reducible to corporate categoriesare reduced nonetheless. Within such a society, it is easy to forget thatmanagement comes out of the servant hierarchy of the feudal estate manors,which began to give way only after World War I. At a university, the scholarsare the nobility, and managers are among the servant class. Glorified managerssuch as Susan Hellmann undoubtedly have a tendency to be a bit too presumptuousin their entitlements even in trespassing beyond their native fauna. Shereminds me of Nietzsche’s notion of the weak bird of prey who nonetheless isdriven to dominate over the strong. This might seem like harsh medicine formanagers to hear, but we must consider the seriousness of the illness byconsidering patients such as UCSF, which has a rather serious case of amnesia.

Hannah Karp, “At UCSF, Chancellor Isn’tWorried About Industry Ties,” The WallStreet Journal, February 15, 2012. http://online.wsj.com/article/SB10001424052970203686204577116374283814362.html

The Profitable Aristocracy: On the Conditionality of the Managerial Elite

2012-02-15T21:09:00.001-06:00

DowntonAbbey,a series that began in 2011 on PBS’s MasterpieceClassics, depicts through narrative life in a British manor beginning withthe sinking of the Titanic in 1912. For European viewers and more generally forthe rest of us, the program proffers a glimpse of the world a century back. Theadvent of the telephone and phonograph seem to pierce through the manor’ssocio-economic hierarchy that had undoubtedly been in place for centuries. Itis the sheer social distance between the servants, almost regardless of theirparticular rank within their hierarchy, and the nobility in the house that isso striking to me. Moreover, the “Your Lordship” and “Your Ladyship” are notcontingent on the manor’s owner employing or even paying the servants.

Lady Mary between the man she was to marry and the man she loves. Carnival/Masterpiece

In other words, nobility is by birth andis therefore not contingent on any financial arrangement. Indeed, after beingfired, servants at Downton continue to address their former employers by theirrespective noble titles. This can easily be distinguished from the business orcommercial culture wherein respectful demeanor is typically contingent on beingpaid. A worker who is fired is apt to quickly drop the former air ofrespect—even turning downright disrespectful. Even a longstanding regularcustomer can find the respectful demeanor of a waiter or front desk clerkquickly turned into something else entirely if a tip is not judged to besufficient or there is a dispute on a reservation or room charge.

An acquaintance of mine who is fromIndia was staying at a Staybridge for a number of months on business. As perthe hotel’s policy, any of the long-term “guests” could invite friends orco-workers to the weekday late-afternoon receptions at the hotel. He invited meto a few of the receptions. Arriving before him on one occasion, I was stunnedat the rude conduct directed at me by the front desk employee and anotheremployee who was helping with the reception. It was ironic that they referredto their paying customers as “guests”yet could not have been of lower class in how they treated a real guest. Theman helping at the reception ignored me and the front desk employee stoodbehind me bragging about how she had just thrown out a “non-guest.” When myfriend arrived, I had to inform him that I would not be able to join him at thereception. He too was shocked at the employees’ behavior. “I live here!” hesaid still astonished.

From my own experience, Days Inn is farworse with respect to a low-class approach to management. In reading reviews by customers, the lack of accountabilityat Days Inn is truly astounding. In Downton Abbey, Granny remarks that oncethe little people get a taste of power, it goes to their heads like strongdrink. Hearing this line, I was reminded of when I made a noise complaint while at a Days Inn. Actually I made one early one morning, then another a night later because the noise above had gotten worse. The front desk employee refused to act on both occasions, so I phoned the police the second time. Even that did not end the noise, which lasted until 6am. From what the Days Inn centralized customer service dept representative later told me, the manager had retaliated against me by reporting to that dept "several altercations with front desk staff including profanity." Days Inn itself refused to come down on the local manager as the hotel was a franchise (they could have demanded a video recording as proof of the alleged altercations). As it was, I was left with the impression that the corporate office was impotent while the manager was utterly corrupt and beyond virtually any accountability. I was stunned that insult could be so easily added to injury as a manager was allowed to turn on a customer in the wake of his own failure. In the context of Downton Abbey, the manager had completely lost touch with the fact that even as a manager he was a servant, rather than nobility. Management, in otherwords, is not of nobility. We allow managers to presume far too much, and alltoo often they get away with it because of their power in their respective organizations.

My point is that the “nobility” in a commercialsociety is utterly fake, as shown through the extent of conditionality. Customersand employers doubtless regard the perfunctory manners of managers as fake—i.e.,as something we are expected to pretend isauthentic rather than contrived simply to get something. Social respect in anon-noble, commercial society is simply a means of manipulation fueled bygreed.

In watching Downton Abbey, I had the sense that “Your Lordship” and “Lady Mary”are expressions from a felt obligation that does not depend on getting anythingin return because the nobility are due it regardless of any monetarytransaction. In America at least, where such a thing does not exist, viewingnobility in another time and place makes the contrived nature of social respectin the American commercial society all the more apparent. Far too much in termsof behavior is assumed to legitimately be conditioned on money.

In fact, the American aristocracy couldbe said to be Wall Street, with lower “counts” being the professional caste(lawyers, CPAs, physicians), while the aristocracies of clerics and scholarsoperate without the requisite currency and thus must appeal to another placeand time. The clerics and scholars have more in common with the nobility thanwith rich CEOs and professionals, whose basis is utterly contingent (i.e.,being wealthy). In other words, the motivesin how the respective aristocracies are addressed differ. Respect for acleric or scholar is rooted in obligation, whereas respect for a businessexecutive or a profession is based on the commercial element (i.e., wealthbeing valued, as well as self-interest).

It is no accident that clerics andscholars are not highly valued in American society—its values being socommercial in nature. Typically an executive or lawyer will dismiss a cleric orscholar for not being “in the real world.” Indeed, some “professionals” evenpresume that their undergraduate degree in a professional school makes themscholars, or able to evaluate scholars. Barak Obama, for example, has beencharacterized as a “legal scholar” simply because he taught in a law school asan instructor with one degree in law. I have read plenty of law journal essayswritten by people having earned a degree in law. Let’s just say the writingreflects the undergraduate degree. In Europe, by the way, a law professor musthave the doctorate in law (JSD).

In some ways, having a doctorate (i.e.,nobility in academia) is like being an earl or count because the title does notdepend on the size of a bank account or any commercial transaction. Afterhaving been hooded, a doctor (this is not properly a medical designation) is foreverdesignated as such, meaning unconditionally. The same applies to a member ofthe European aristocracy. Also, that aristocracy prides itself on its goodmanners, while I have wondered if a lot of education renders one more refinedas well. Perhaps it is simply a function of being socialized for so long at university.Particular at good or excellent seats of learning, the context does not exactlyreflect society as a whole.

I contend that an educated refineddemeanor is superior to the conditionality of commercial relationships. It is nosurprise, therefore, that the educated aristocracy is so slighted by theAmerican society at large—including the moneyed “aristocracy,” which after allhas a vested interest in doing so. As if to circumvent the true scholars, the“aristocracy” of professionals even sought to portray its undergraduate degreesas if they were doctorates, and thus among the scholarly nobility too. Nice try. Such games put the nobility asdepicted at Downton Abbey at quite a distance.

The over-reaching andconditionality—both of which are indicative of low class—may have been made possible because hereditary nobilityhad been eliminated long ago in the U.S. In other words, American society isreductionist in terms of its notions of aristocracy—reducing it to being afunction of money. How could anything truly noble be so conditional? Moreover,how could it be so low class and still be aristocratic? Our nobles must bepretenders. Might our forefathers have left us vulnerable to such hypertrophy(i.e., the over-extension of one part) by extirpating nobility? Is there nothingwhatsoever to distinguish “well, he wasn’t raised right” from “he came from agood family”? A person of the latter rightfully recoils at the presence of aperson of the former who is being rude “without a clue.” What of this natural hierarchy, or aristocracy?Surely it is not conditioned on a monetary transaction. A suddenly rude frontdesk employee “was not raised right,” I would wager. An innate sense of “withpower comes responsibility” over “it’s the customer’s responsibility” ismissing from America’s commercial aristocracy and its epigones (i.e., formerlyservants now as managers).

In other words, Americans allow servantsto over-reach in claiming authority on the basis of running something. Themanagers of Downton Abbey were classified as among the servants, rather than asamong the nobility of the house. Yet the modern manager is seldom viewed as aservant—especially by the employees. “Labor/Management” is itself within theservant hierarchy.

As much as I disapprove of a hereditarybasis for any social privilege because it is unearned (although acting on anoble obligation of service over years could make it so, as illustrated byQueen Elizabeth II), I find the commercial variety even more distasteful andcertainly not noble. In fact, I look at the conditionality based on commerce asrather low class. Its own lack of respect for clerical or scholarly nobilitysimply confirms my judgment. Conditioning one’s attitude on money isunquestionably banal. Even so, because we have nothing to compare our“aristocracy” too, it is virtually unquestioned in American society. We viewthe CEO as a noble rather than as being at the top of the servants’ hierarchysimply because the CEO is wealthy.

In fact, basing so much social value onmoney can even been seen in how the American “safety net” for the poorest ofthe poor is nevertheless all too contingent on job history. From the Americansense of nobility, survival itself is presumed rightly conditioned on having participated in the commercial lifeof the society. The human rights to food, shelter, medical care, medicine, andeven survival itself have been inherently conditional throughout Americanhistory. Perhaps having a non-conditional aristocracy would ironically haveimplied a non-conditional basic human right.

Russian Private Property: Based on Fairness or Legality?

2012-02-13T15:08:00.000-06:00

In a move to shore up popular supportbefore the presidential election in 2012, Vladimir Putin called for a windfalllevy on the dishonest privatisations of the 1990s. “We need to close theproblems of the 1990s, of what, speaking honestly, was dishonest privatisation,”he told tycoons meeting at a congress of Russia’s big business lobby. He wenton to say, “We need to establish the social legitimacy of private propertyitself and social confidence in business.” The implication is that justacquisition is requisite to private property being recognized as legitimate,societally.

Directly contradicting Putin’sassumption, Mikhail Prokhorov, the Russian billionaire who was running at thetime against Putin for the presidency, said, “To review the [privatisation]results now would destroy the legitimacy of all property rights in the country.The problem is fundamental—everything that was done then was legal even if itwasn’t just.” In other words, the acquisition need not be just for the propertyto be legitimate. In fact, it is the takingof private property that was acquired legallythat undercuts the legitimacy of private property. If this is because sucha taking is unfair, then why wouldn’t the unfairness in the privatisations inthe 1990s also negate the legitimacy of the private property?

Source:

Catherine Belton, “Putin Calls ForWindfall Levey on “Dishonest” Privatisations,” Financial Times, February 10, 2012. http://www.ft.com/cms/s/0/77de73aa-5346-11e1-aafd-00144feabdc0.html#axzz1mIa4LJKV

Distinguishing Entitlements from the Safety Net

2012-02-12T10:49:00.000-06:00

Congress has lost sight of thefundamental purpose of a safety net, extending it beyond the difference betweenlife and death. By zeroing in on the purpose of a safety net, Congress can bothsave money and better provide for the survival of those who are not providingit for themselves. Of such people, where survival itself is at stake, questionsof being deserving pale in comparison to society’s obligation to fend offstarvation, sickness and homelessness. Ironically, by extending the safety netbeyond survival, Congress has undercut its role in providing for its citizens’survival.

According to the New York Times in February 2012, the “government safety net wascreated to keep Americans from abject poverty, but the poorest households nolonger receive a majority of government benefits. A secondary mission hasgradually become primary: maintaining the middle class from childhood throughretirement. The share of benefits flowing to the least affluent households, thebottom fifth, . . . declined from 54 percent in 1979 to 36 percent in 2007,”according to a Congressional Budget Office analysis published in 2011. Makingthe secondary mission primary undercuts the primary mission by putting it atrisk.

Objections to the secondary mission asunnecessary can spill over as criticism of the primary mission as if it too werenot necessary. “Many people say they are angry because the government iswasting money and giving money to people who do not deserve it. But more thanthat, they say they want to reduce the role of government in their own lives.They are frustrated that they need help, feel guilty for taking it and resentthe government for providing it.” A wealthy retired person drawing socialsecurity insurance ought to feelguilty; the insurance program is not a savings account. Criticism of thiscategory mistake can impact politically the funding of social security forthose who need it. For example, even as wealthy retirees draw on socialsecurity, the social security disability program is work-based, meaning that aminimum number of quarters of work are necessary even for one to apply forbenefits. Making a safety net dependent on a work history cuts off thelong-term ill from the safety net. Moreover, the requirement implies that aperson who has a disability does not deserve to survive independently of work.For a safety-net program to be dependent on anythingmeans that the program is not part of the safety net, as safety nets are bydefinition not conditional. Yet where a society so values work as a source of aperson’s value (e.g., “I am a plummer”), a program can easily be assumed to bepart of the safety net without actually being part of it.

Related to the political cost ofcriticism of superfluous programs (i.e., beyond survival) is the refusal tofund true safety-net programs sufficiently. Congress has “expanded the safetynet without a commensurate increase in revenues, a primary reason for thegovernment’s annual deficits and mushrooming debt. In 2000, federal and stategovernments spent about 37 cents on the safety net from every dollar theycollected in revenue, according to a New York Times analysis. A decade later,after one Medicare expansion, two recessions and three rounds of tax cuts,spending on the safety net consumed nearly 66 cents of every dollar of revenue.”One “benefit” of tax cuts is that they “starve” entitlements, which are allgrouped together and presumed to be unnecessary rather than serving a truesafety-net function.

The result of the prejudice and relatedstarvation is that over the next 25 years from 2012, “as the population agesand medical costs climb, the budget office projects that benefits programs willgrow faster than any other part of government, driving the federal debt todangerous heights.” In other words, safety-net programs are fair game on thechopping block without respect to whether people die without them or are merelyinconvenienced. The failure to distinguish between these two is dangerous tothe abject poor. Were the distinction made, corporate welfare and even middle-classwelfare could be cut by more, I submit, than the additional funds needed toprovide the least well-off with sustenance. In other words, we as a society canhave a solid survival-oriented (and limited) safety net that is not conditionalwhile actually saving money asbenefits are narrowed to people who really needthem.

The key is focus in place of upward drift. As just one example, money savedfrom a means test for social security retirement insurance could be spent inexpanding social security disability such that its benefits are not conditionalon the long-term ill somehow having worked thirty or forty quarters in the lastten years. How exactly is a retarded adult supposed to find and hold a job forthat many quarters? Making the benefitsunconditional with respect to work history is crucial, as the social security supplementalincome program is insufficient to meet sustenance needs. It is unconscionableto expect the long-term disabled to have worked in order to receive enough tolive on while the middle class receives entitlements classified as “safety net.”The key to making survival a human right is recognizing the need both to expandprograms at that level and severely restrict programs aimed at higher levels.Whereas middle- and high-income beneficiaries of government largess canjustifiably be blamed, it is sheer cruelty to blame those who are not able tomeet even their own basic needs from work for receiving subsidies.

In my rather ignorant, presumptous hometown, an unemploymentrate of around 20% went with the recession of 1980 as the machine tool industrywent to Europe. The city had the highest unemployment rate in the state in thepost-September 2008 recession, and yet the first vote the re-elected U.S. Houserepresentative made in 2010 was to cut off unemployment compensation. His claimwas that people should get off the dole and work for a living. It wasapparently beside the point that there were no jobs; the unemployed weresupposed to have them anyway. This is like telling people that the empty spaceon a table is to be imagined as spaghetti and then getting mad at them for noteating it—as if they should be expected to eat air. Such warped, illogicalthinking as the Congressman evinced in 2010 in the rustbelt of America can belinked to reducing a true safety net to a society of entitlements. To hold thepoorest of the poor to such warped thinking is utterly cruel as well asignorant. I hope American society has not come to such a selfish andshort-sighted end. The society is only as good as we treat the least among us,for such treatment reveals our true colors.

Source:

Binyamin Appelbaum and Robert Gebeloff, “EvenCritics of Safety Net Increasingly Depend on It,” The New York Times, February 12, 2012. http://www.nytimes.com/2012/02/12/us/even-critics-of-safety-net-increasingly-depend-on-it.html

Obama’s Educational Waivers: Toward the Political Consolidation of an Empire

2012-02-11T07:12:00.000-06:00

A decade after the No Child Left Behindfederal law was enacted, “President Obama freed 10 states from some of its crucialprovisions.” The states’ freedom from a deadline for bringing all students toproficiency in reading and math by 2014 came with strings—accepting Obama’s owneducational agenda, which focuses on accountability and teacher effectivenessand includes higher standards than the ones set in NCLB. Many state educationofficials have criticized the 2014 deadline as “an impossibly high bar” that“did not take into account the needs of some of the most disadvantagedchildren.” In announcing the waivers from the deadline, Obama said that thegoals of NCLB should be met “in a way that doesn’t force teachers to teach tothe test, or encourage schools to lower their standards to avoid being labeledas failures.” However, if the standards are to be even higher, might even fewer schools wind up passing—even if thedeadline is extended?

In assuming that the setting educationpolicy is one of the enumerated powers of the Federal Government, Obama wasapplying a “one size fits all” approach over what is essentially an empire ofdiffering republics. Furthermore, having so much power over the states oneducation policy, the Obama administration was compromising the check andbalance feature of federalism wherein the states are to act as a check onfederal encroachment just as the federal government is to act as a check onstates violating the rights of, or not providing for, their respectivecitizens. In other words, the significance of NCLB and the Obamaadministration’s own attempt to standardize education policy in the statesthrough the spending clause of the U.S. Constitution (which alone is a stretch)goes well beyond education policy. The viability of the system of government inthe United States can be seen to be severely compromised just in thepresident’s attitude toward the states—as if they were children and he wasdaddy.

Ken Wheare argues in his text, Federal Government, that state governments need beautonomous of federal authority in only one area for modern federalism to work.Wheare also extolls the mutual check and balance feature of federalism (asdistinguished from a confederal alliance). The point I would like to make isthat if the states of a federal system are “free” only in one domain, they donot have a sufficient basis of power on which to act as a viable check against the encroachment offederal power over that of the states.

Where the federation is on the empirescale, such as the E.U., Russia, and the U.S., the consolidation that comeswith federal encroachment means that inherent differences across the landswithin the federation are stifled or ignored. Built-up pressure is not good forongoing political stability. Policy itself tends to be of compromise that noone would independently want, rather than tailored to the particular politicalsocieties within the federation. As of at least the beginning of 2012, Europehas seemed more aware of the need of particular states to legislate for theirrespective polities than has America.

As Justice Sandra Day O’Conner oncesaid, “Congress is acting like a state legislature.” Such a significantcategory mistake cannot be good for the viable of a republic of republics—whatMontesquieu referred to as wheels within a wheel. If all of the wheels withinthe wheel of the whole cannot operate at least partially independently, thenany problem in the mechanism can quickly bring the entire mechanism to a quickstop. Like genetic diversity with respect to health, semi-sovereign diversityis necessary for political stability where the federation is on theempire-scale (i.e., inherently heterogeneous). We focus only on the substanceof education policy at the expense of the impact of the “how” on our system of public governanceat our own peril. As long as it has interlarded itself into the classroom,perhaps the Federal Government should mandate that federalism be taught inCivics. It is more than a little disconcerting that the White House staff andtheir boss might need to attend such a class before being able to grasp theimportance of the topic.

Source:

Winnie Hu, “10 States Are Given Waiversfrom Education Law,” The New York Times,February 10, 2012. http://www.nytimes.com/2012/02/10/education/10-states-given-waivers-from-no-child-left-behind-law.html

The Descendants: A Matter of Character

2012-02-10T16:27:00.000-06:00

In the 2011 film, The Descendants, George Clooney plays a character who must wrestlewith several trade-offs bearing on character itself. Both the acting and thescreenwriting handle the task very well. It is a pity that the actor gets anear monopoly of the credit/attention, for the way the trade-offs are navigatedby the screenwriter is vitally important—perhaps even more so thanthe acting.

For example, thedecision is made in the writing whether the character will cash in on instant gratification orprotect the interests of people who do not deserve any such protection.Moreover, the screenwriter weighs how many of the character’s decisions willside with principles over expediency and how many will reflect instantgratification.

Clooney’s character decidesnot to harm an antagonist in one way and then decides to take something awayfrom that same antagonist. The taking away is consistent with a societalprinciple, but is nonetheless part of the motivation. Interestingly, thedecision not to harm the antagonist even though such harm would be totallyjustified contributes to the antagonist effectively undoing that protection.

Generally speaking, deciding not to pouncewhen one would be justified in doing so can eventuate in the protagonist“having his cake while eating it too.” Acting on principle rather thansatisfying immediate gratification can involve or trigger a “multiplier effect”wherein “what goes around comes around” for the offending antagonist. Theprotagonist acts on the basis of character—which is beyond ethical obligation—and eventually can realize satisfaction,only here due to the antagonist’s flaw unraveling rather than to any complicityby the protagonist.

Deciding to be mercifulat the expense of instant justification may trigger something in nature thateventuates in one eventually receiving an even greater benefit “with interest.”In illustrating this dynamic, the screenwriter teaches a modern society ofinstant gratification an important lesson and provides a role model for us all.

For more info on the film, please see http://www.imdb.com/title/tt1033575/

Conflicts of Interest and Paradigm-Shifts: The Case of Financial Regulation

2012-02-09T17:27:00.000-06:00

It is perhaps all too easy to perceive asea-change in perception when the reality of societal change is much moregradual. There is something to the argument that John D. Rockefeller’sreputation was salvaged in the 1930s not because the old man was passing outdimes, but, rather, simply because he had outlived his critics. Similarly,Thomas Kuhn, in his text on paradigm changes in scientific revolutions, bemoansthat the advocates of a default theory must finally die off before theirdarling can finally be replaced by a new one. In other words, any given personis not apt to shift paradigms. The culprit, I suspect, is pride, whichAugustine suggests in his writings is inherently self-idolatrous. I believe thehuman brain is capable of accepting inter-paradigmatic change, just as a personcan be humble. That this is not the norm does not mean that we ought not raiseour expectations to it.

Even after Alan Greenspan admitted inCongressional testimony that there is a fly in the ointment of hisneo-classical economic (free-market, or laissez-faire) paradigm—namely, thatthe market mechanism freezes rather than “prices out” at a certain risk (thatmechanism may even increase volatility)—there were calls for deregulation as if September 2008 had not occurred. Just as some voices hadcalled for the repeal of the Sarbanes-Oxley law, which strengthened accountingsafeguards, voices were calling for the repeal of the Dodd-Frank law of 2010.

According to Jesse Eisinger in early2012 when Dodd-Frank was at risk for being emasculated via the vested interestsof Wall Street lobbying in Washington, D.C., when Sarbanes-Oxley was passed,“it was attacked almost exactly the way Dodd-Frank is today.” He notes that themain criticisms of Sarbanes-Oxley did not pan out. “Corporate earnings havesoared, and no company has ever missed a quarterly estimate because it wasspending too much on its accounting and internal controls.” I contend that WallStreet’s contention that additional regulations mean more costs is a ruse. Thereal culprit is perceptual: it is as ifSeptember 2008 had not occurred. In other words, perceptual denial is whatultimately holds paradigm-change back. Beyond the obvious financial interests,I suspect the intransigence is rooted in ideology, for it even more than moneycan be immune from recognizing those nasty facts that would otherwise get inthe way.

Therefore, in listening to someone’splea for deregulation of Wall Street, you can marvel that the person hasblacked out the crisis of 2008 from his or her mind. Why can’t the unregulated derivative securities markets work? It isas though the person has amnesia. If I am onto something here, the naturalreaction is not to argue but to be stunned—thinking there must be somethingpsychologically wrong with the person. In the end, ideology can be viewed as asickness of the brain that so distorts perception that the person bearssymptoms of denial akin to those of alcoholism. Only a fool argues with analcoholic who insists he can handle a drink. But what about last night? . . . What about last night? . . . Nevermind. It is pointless to argue. The problem is that policies such asfinancial regular are subjected toargument and debate in a democracy, so one can find oneself arguing whetherSeptember 2008 even happened.

It might be that like Rockefeller’sreputation, the need for additional financial regulation to thwart a repeat ofSeptember 2008 might have to wait until the critics have died off. In themeantime, we can expect Wall Street lobbyists to continue to turn Dodd-Frankinto Swiss cheese.

Although paradigm changes cannot befoisted on the unwilling, that they have such a huge influence on matterspertaining to their vested interests (and involving their denial) ought tobreach our own denial concerning theirconflict of interest in being involved at all. In other words, peopleideologically invested in the free market sansgovernment regulation may dig in for their duration, but the rest of usneed not give them a veto in the process of cleaning up after a spill that wefirmly believe has indeed occurred.

Therefore, we should take Eisinger’soptimistic verdict on Sarbanes-Oxley that “accounting disputes are finishedbefore they start”—even though CPA firms still face an institutional conflictof interest—with a grain of salt. The accounting industry has not been “cleaned up.” For all thecriticisms of Dodd-Frank, Eisinger claims “there has been a societal change inour views. Few can sustain an argument in favor of a gigantic, self-serving andrapacious financial sector.” I respectfully disagree. Plenty of free-marketadvocates still exist, and with them, the risk of a systemic financial collapserelated to insufficient financial regulation. Paradigm shifts do not happen asquickly or as neatly as Eisinger supposes, and the cause is lodged in theideological perception of the defenders of the pre-existing paradigm. It isremarkable that a paradigm that Alan Greenspan told Congress has a fatal flawcan still be viewed as whole, even as September 2008 is effectively denied evenas having happened at all.

We can look to Augustine, who differedfrom Paul in claiming that pride rather than acquisitiveness is the chief sin.I would simply add that pride can wreak havoc on perception by means ofideology, effectively arresting or at least delaying paradigm-shifts. I do notview this as inevitable, and one way of not having to wait for the twentiethcentury to die off would be for the American people to insist that partieshaving a vested interest in a policy not be allowed to participate to such anextent in it. Beyond prohibiting Wall Street from being able to write its ownregulations officially, we would have to have the will to do so, as a societalvalue, such that even informal attempts by the vested interests are rebuffed asinappropriate (and unseemly). This suggestion is admittedly idealistic,particularly given the rather pro-business culture in the U.S., whereinideological denial can extend far beyond vested interests where business isconcerned. Also, the myriad number of access points in the federal governmentalone make obviating even such a clear (though typically denied) conflict ofinterest extremely difficult. We might be left with having to wait for the oldparadigm to die out. My modest point is that this need not be. For all theadvancement technologically in ipods and ipads, smart phones and blackberries,perhaps we as a society ought to lend a little brain power to the matters ofconflicts of interest and paradigm-shifts.

Source:

Jesse Eisinger, “In Finance, Past Hintsat Future,” The New York Times,February 9, 2012. http://dealbook.nytimes.com/2012/02/08/to-envision-dodd-franks-future-look-to-its-predecessor/

A Big Miracle: Societal Stakeholders

2012-02-08T17:48:00.000-06:00

The real miracle at issue in the 2012 film,A Big Miracle, is not whether threewhales can get to open water. Rather, the miracle that would seem to requiredivine intervention is whether the Alaska National Guard, the White House(Ronald Reagan), Green Peace, the media, a major oil company, and even theSoviet government can work together to accomplish the ostensible miraclecentered on the whales. Watching the American “stakeholders” decide on whetherto ask the Soviets for help, it occurred to me that businesses (and businessacademics) regularly misapply the term, “stakeholder.” Lest we have beeninadvertently lulled into a state of complacency in assuming we do not stray inour use of terms such as stakeholder,leadership, and corporate social responsibility, a film can yank us back upright.

In the film, each of the various partiesidentified above have a stake in solving the whales’ problem. This is not tosay that all of the parties are motivated by the whales’ welfare. The oilcompany executive, for example, sees his company’s involvement as an investmentin favorable public relations that in turn he could use as political leveragein upcoming federal legislation. Green Peace, on the other hand, is perhapsmost intentionally invested in the whales themselves, though the increaseddonations made possible by the increased publicity of the crisis cannot be farbehind. Meanwhile, Alaska’s national Guard seems invested in achieving “missionaccomplished” almost independent of the specific content. Perhaps we canconclude that self-interest is not missing from any of the participants, butthis does not mean they do not have a stake in the outcome. When they meettogether to discuss whether to urge Reagan to ask the Soviets for help, theparties really are stakeholders inthat their respective stakes are authentic.In other words, it makes sense that each participant would have a stake. I donot believe this is the case for a corporation’s “stakeholders.”

In the case of stakeholder managementtheory, the stakeholders’ respective claims on the focal corporation in termsof power in the corporate governance do not necessarily make sense. Saying thatan environmental group, for instance, has a stakein a corporation that pollutes is not necessarily to give that group a right to some power in the corporation’sgovernance or management. In other words, the group’s “stake” may simply be anattempted power-grab, which is far from confirmed as justified. For one thing,such “power-sharing” would have to overcome the property-rights trump card ofthe stockholders, which is the basis of the directors’ and managers’ fiduciaryduty.

Therefore, while it makes perfect senseto the participants in the film navigating through the crisis—which is itself amiracle considering the divergent positions they would naturally have—I do notsee the “stakeholders” of a corporation when I envision how a corporationsolves a problem. It may be that the term “stakeholder” is valid only at thesocietal level, where “corporatist” (i.e., different functional groups)coalitions of stakeholders naturally arethe problem-solvers. At the organizational level, the problem-solvers arerightfully within a given organization. One would hope they would consider theimprint of their decisions on outsideentities and society itself, but an organization naturally puts itselffirst—just as a living organism does. Self-preservation was the principalassumed goal of human beings in the political philosophy of the seventeenthcentury (e.g. Thomas Hobbes), for example. By adding this point, I demonstrate as an aside how business schoolscould be better integrated with the Liberal Arts, rather than being meretraining institutes (i.e., sycophants for corporations). Just as we ought notnecessarily assume that we are using “stakeholder” correctly when we apply it corporate social responsibility ratherthan to societal responsibility, wewould err in assuming that our universities are “on track” from the standpointof higher education.

For info on the film, please see http://www.imdb.com/title/tt1430615/

Leadership Vision at Facebook

2012-02-08T08:47:00.000-06:00

On CharlieRose in early 2012, a former CEO of Coke told Charlie that companies viewcorporate social responsibility as lying within the domain of strategy.Specifically, it is in a company’s strategic interest that its sources of rawmaterials do not “dry up.” A corporation’s societal responsibility dovetailswith its interest that the corporation’s own “footprint” (a.k.a. “Big Foot”)not put the company’s own survival at risk. One could say a company is“responsible” (as if it were felt as a duty rather than simply self-interest)for safeguarding those things on which it depends. In other words, it goes outfrom its immediate interest in securing supplies to assume a “societal” role inprotecting the sources themselves, as ifacting as a good citizen. The motive is more like stewardship—the objectivebeing maintaining an ability to extract the material in the long term. Profit,in other words, is foremost, and any word of duty is mere marketing. This does not mean that leadership visionbeyond profits as an end is a façade.

For one thing, vision does not in itselfcontain any deontological (i.e., obligation) element. Corporate responsibilitycan be part of the content of a vision, but visionitself does not require it. Furthermore, a CEO’s vision need not reduce toprofit-making as a means or even as an end in itself. Beyond having aspectsthat are distinct from, yet consistent with the company’s financial element, aCEO’s vision can emphasize those aspects over that element. This does not mean“at the expense of.” It is important, I submit, that a corporate charter (i.e.,a mission) can be put in terms other than, yet consistent with, profit-making.Not everyone is motivated by the hope of higher profit numbers. Moreover, as acorporate charter is technically a delegation from the state that a societalfunction be done by private hands, a leader’s vision expressed as the corporatemission can be viewed as the company’s societal responsibility—as per thecharter having delegated that function to the company. In other words, companiescould be seen more in terms of the vision they have of society as per theirrespective functions than merely as profit-making enterprises. At the veryleast, this could make both leading and working in a company more fulfilling.

In a letter to investors on the occasionof Facebook’s IPO, Mark Zuckerberg wrote that the company was not originallycreated to be a company. “It was built to accomplish a social mission—to makethe world more open and connected.” He could well have added, “and more democratic,”given Facebook’s role in the “Arab Spring” of 2011. Working to improve socialnetworks—essentially connecting the world from the level of a village to theglobe itself—is apt to be more rewarding emotionally than being focused only onprofit-figures. To be sure, money makes the world go round, and this includescompanies even if they didn’t start out to be companies. However, keeping thevision foremost in one’s mind can make one more likely to think of additionalmeans by which the society envisioned might be realized by means of thecompany. In contrast, a manager figuring out ways to get a 15% internal rate ofreturn on $500,000 that she has at herdisposal is not as likely to stimulate content on “more open and connected.”Behind Zuckerberg’s letter is his belief that being open to create newcontent—even risking mistakes along the way—is ultimately in the interest ofWall Street. It is perhaps paradoxical, as he writes, “We don’t build servicesto make money; we make money to build better services.” Of course, betterservices bring even more money. In other words, putting money second is inmoney’s own interest. Leadership vision can thus be extremely valuable to thebottom line.

Source:

Somini Sengupta and Claire C. Miller,“Zuckerberg’s ‘Social Mission’ View Vs. Financial Expectations of Wall St.” The New York Times, February 2, 2012. http://www.nytimes.com/2012/02/02/technology/social-mission-vision-meets-wall-street.html

Refusing for its Own Sake: Israel on the Palestinian Unity Government

2012-02-07T20:10:00.000-06:00

President Mahmoud Abbas of thePalestinian Authority reached a deal for a unity government with Hamas onFebruary 6, 2012—which was also the sixtieth anniversary of the Accession Dayof Queen Elizabeth II of Britain. Prime Minister Benjamin Netanyahu had warnedthat a unity government with Hamas would rule out any chance of making peacewith Israel. Meanwhile, the E.U. and U.S., as well as the state of Israel, hadconditioned recognition and aid to Hamas on that party renouncing violence,recognizing Israel, and agreeing to previous agreements reached between theP.L.O. and Israel. In short, for all that achieving a unity government requiresin terms of hard decisions and effort, the accomplishment was not exactlyvalued by Israel and the West. Aside from the baleful consequences in refusingto recognize something of value out of stubbornness and inflexibility, Israeland the West may have been hurting themselves by ruling out a chance for peaceat the outset.

“Hamas is an enemy of peace,” Netanyahusaid. “It’s an Iranian-backed terror organization committed to Israel’s destruction.”Doubtless that description reflects Hamas historically, but in sticking to thedescription, it was the Prime Minister rather than Hamas that was cutting offany chance of peace. He was ignoring or dismissing the possibility that Hamascould change as a result of negotiationsand a deal. Part of what happens as two parties negotiate and reach a dealis that the parties’ respective perspectives and interests can also change. Tocondition the negotiations themselves on the other party already having changedis illogical, besides being utterly unfair to that party irrespective ofwhatever its past may or may not have been. It is essentially to presume thatthat which takes place during negotiations must somehow occur beforehand—andfor only one of the parties. In continuing to build settlements, Israel has notexactly been kosher going into the negotiations; Abbas’s unity government couldinsist that Israel itself change as a condition for negotiations to begin.

Ironically, Abbas’s unity government maybe requisite to any agreement, for otherwise Hamas would be outside any suchdeal. Presumably everyone concerned must be part of a peace deal for peace toensue. Therefore, Israel as well as the U.S. and E.U. would be wiser not tolook the gift horse in the mouth—meaning complain about that which is really agift to them. Abbas has undoubtedly had to swallow hard to accept a unitygovernment with his rival. He is due credit for this, and his action should berecognized for what it is: a necessary step on the way to a definitiveagreement between the Palestinians and the Israelis. At the time of Abbas’sannouncement, it would have been wise for Israel and the West to seize theopportunity of the unity government rather than view it as ending any chance ofan agreement.

The lack of change projected onto Hamaswas really in its adversaries. “Give peace a chance” means being willing torelax one’s stubbornness such that one can change. The change needed isultimately in oneself—not the other guy. With this on one’s plate, to worryoneself with the other’s change involves a rather presumptuous overreachingthat one can ill-afford. This is not to say that the other guy has been anangel. Hamas has been far from it, but the same could be said of Israel. Ittakes two to tangle, and angels have no need for peace talks. Sometimes appearancescan be deceiving here on earth. The smallest excuse may easily be made use ofby the party most interested in sustaining a feud. If there is anything thatmust change before negotiations can begin, it is this: a refusal to come to thetable, presumably conditioned on some change in the other guy other than hisrefusal to come to the table. The refusal usually says much more about the refuser than the refusee.

Source:

Ethan Bronner, “Abbas Will Lead thePalestinians in a Unity Pact,” The NewYork Times, February 7, 2012. http://www.nytimes.com/2012/02/07/world/middleeast/palestinian-factions-reach-unity-deal.html?ref=todayspaper

Windfall Oil Profits

2012-02-06T09:47:00.000-06:00

According to the New York Times onFebruary 1, 2012, Conoco Phillips reported a 66% increase in earnings for thefourth quarter of 2011, “attributed to high crude prices and asset sales.” Withthe prices of most crudes above $100 a barrel, the company gained a windfallthat vastly made up for a drop of nearly 3% in its refining and marketingbusiness. Chevron, on the other hand, reported a 3.2% decline in fourth-quarterearnings due to “poor refining results” that “overwhelmed higher revenue fromoil sales.”

Meanwhile, Exxon Mobil reported netincome of $9.4 billion for the fourth quarter, up from $9.25 billion the yearbefore. The company’s revenue of $121.6 billion was up 16 percent. According tothe Times, the improved earnings reflect the $100 plus prices for manybenchmark crudes, which resulted from “continuing unrest in the Middle East andNorth Africa and strong demand from China and other developing countries.” Tobe sure, the company’s purchase of XTO Energy for $25 billion in 2010 meantthat the plummet in natural gas prices also had a significant impact on thecompany. Even so, a company making nearly $38 billion on an annual basis raisesquestions on the sheer size alone, and whether any market can be competitivewith such a giant.

Furthermore, the legitimacy of thewindfall profits coming from political instability rather than any merit on thecompany’s part should also be questioned, as well as why Congress balked on awindfall profits tax for the industry in 2011. In other words, the market power is not the only kind ofpower we should be concerned about in looking at Exxon Mobil. Such a concerncould extend to why George W. Bush decided to invade Iraq, given that that thatcountry’s ruler had kicked American oil companies out in 1993 after the U.S.intervened to move the Iraqi army out of Kuwait. We could even ask whether theoil companies, or their agents in government, have had anything to do with theinciting some of the political stability behind the astronomical crude prices.

To be sure, Chevron shows us that even abig oil company can manage not to benefit from a $100-plus crude-price windfall.Moreover, oil executives could argue that windfalls are “necessary” as“cushions” against the prospect of a glut in natural gas, for example, or theneed to do major work on aging refineries. Even with the inevitablevicissitudes that come with dealing with raw material markets, however, thatthe prices of crudes have gone so much higher than the costs of getting oil outof the ground suggests that the market mechanism has not been functioning asAdam Smith would have predicted—meaning an oligopoly has replaced a competitivemarketplace.

John D. Rockefeller, whose effort tocoordinate the refining industry in the U.S. via a huge monopoly calledStandard Oil (of which Exxon Mobil is a descendant), could point to all thebankruptcies amid the “excessive competition” in the 1860s as justifying even amonopoly in place of any competition at all. He used means that would beconsidered very unethical today to get competitors to “agree” to be bought outby the combination so there would be no “destructive competition.” Even if itwas necessary in the early years of the oil industry, we ought not assume thathuge oil companies are necessarily the legacy we must pass on to the nextgeneration.

Source:

Clifford Krauss, “Higher Oil PricesRaise Earnings at Exxon Mobil,” The NewYork Times, February 1, 2012. http://www.nytimes.com/2012/02/01/business/higher-oil-prices-lift-profit-at-exxon.html

Is Syria’s Sovereignty Absolute?

2012-02-04T13:49:00.000-06:00

“Fundamentally, the argument over Syriareflects a deeper divide between those who would use the Security Council toconfront nations over how their governments treat civilians, versus those whoconsider that it has no role whatsoever in settling domestic disputes.” On theone side, Sheik Hamad, the prime minister of Qatar, reported to the SecurityCouncil, “The government killing machine continues effectively unabated.” Theimplication is that people running a government do not have legitimateauthority to kill over 5,000 fellow citizens.

The Arab League taking on Syria at the Security Council. Mario Tami/Getty

On the other side, the Russian envoy,Vitaly Churkin, adopted a “where will it all end” argument. The Council, hesaid, will start saying “what king or prime minister needs to step down. TheSecurity Council cannot prescribe recipes for the outcome of a domesticpolitical process.” The Russian foreignminister added that the “Russian policy is not about asking someone to stepdown; regime change is not our profession.” He might have well have said, “itis none of our business whether Assad kills his people.” He did say that “thedecision should be made by Syrians, by the Syrians themselves.” What he did notsay is that, according to the New York Times, “Russia’s long ties to Syriagenerate billions of dollars in weapon sales, plus the relationship givesMoscow the entrée it needs to be at the table for Middle East peace talks. Inaddition, the Russian Navy deploys some ships from the Syrian port of Tartous,widening Russia’s sphere of influence into the Mediterranean.” Of course, theWest has a strategic interest in toppling Assad to weaken his ally, Iran, aswell as Hezbollah, which backs Assad.

Strategic interests, regardless of whichside they happen to be on, should not be determinative, even as the existenceof the veto in the Security Council allows them to be. The fundamental issuesgo beyond what fascinates an analyst, and thus should not be cut short bymomentary concerns. The basic question has to do with whether “the sovereignty,independence, unity and territorial integrity” of a country, including Syria,is absolute. Can human rights legitimately counter the claim of absolutism? Inother words, does a ruler have the right, internationally-speaking, to use agovernment’s monopoly (or at the very least, advantage) of force to killnon-violent citizens? If not, should the U.N. have the right to intercede? These were the questions before the world in2011, and they were no closer to being resolved as 2012 got underway at theU.N.’s Security Council.

Perhaps compromise can be found, such ashaving the International Criminal Court, rather than the Security Council,decide whether a ruler has violated human rights. An international code ofhuman rights violations sufficient for a ruler to be vacated by the court wouldneed to be formulated. Contributing forces to the enforcement effort would berequired of any country that has signed onto the Court’s jurisdiction, so theU.N. need not be the instrument. However, as this compromise will have kept theSecurity Council from being in the regime change profession in terms of makingthe decision, perhaps Russia and China would agree to the U.N. serving in somecapacity following the Court’s verdict.

Absent such a compromise, the questionmay be whether the U.N. or a new organization should limit national sovereigntywhere human rights of citizens are being sufficiently violated. Theself-interest of rulers sitting on the Security Council may dictate that aprecedent applying an international check on the power of current office-holdersis undesirable. As with strategic interests, such a conflict of interest shouldnot be allowed to interfere with, or obstruct, a decision on the fundamentalquestion: Is national sovereignty absolute, and, if not, should the U.N. play arole in limiting it?

I suspect that “we’ll just have to agreeto disagree” would be as far as discussions between the E.U. and Russia wouldget on the question. If so, then—and Europeans should recognize this from theirown differences on the Union-level—members of the U.N. who are no longerwilling to recognize national sovereignty as an absolute could form a separate“track” from the U.N. that would include a new United Nations. Members of itwould of course be subject to that organization as a check. Additionally, thatorganization could decide to support efforts to defend human rights withmilitary force in a country that is not a member.

I do not believe that the philosophicaldifference between the “absolutists” and the “human rights” camps in theSecurity Council is such that anything short of a split can answer thequestion. Lest this appear too pessimistic, a wider time-perspective couldallow for a different perspective in both Moscow and Beijing. In the meantime,a coalition of the willing should not lose any time in setting up a new U.N.that includes “human rights-justified regime change” in its mission, becausethe existence of the veto means that the existing U.N. will remain stuck—whichessentially means led by the few holdouts rather than the majority of themembers. Rather than being stymied by a few members of the Security Council,each of whom retain a veto-right, the forces willing to act against peers whoare systematically violating human rights should step up to the plate—assumingthere really is an interest in putting human rights before absolute nationalsovereignty.

Source:

Neil MacFarquhar, “At U.N., Pressure Ison Russia For Refusal to Condemn Syria,” TheNew York Times, February 1, 2012. http://www.nytimes.com/2012/02/01/world/middleeast/battle-over-possible-united-nations-resolution-on-syria-intensifies.html

The Banking Lobby: Writing Its Own Ticket in Washington

2012-02-02T20:57:00.000-06:00

According to the Huffington Post, “Wall Street's campaign spending and lobbying power is so intimidating that banks have repeatedly stuck the public with the tab for their losses and no one in Washington stops them.” The unfairness can drip off the page all it wants, and the banks will still get what they want, thanks to Washington—a significant change to be sure from President Jackson depriving the Second National Bank of the U.S. of funding in 1832.

For example, as proposed in early 2012, “(m)ortgage lenders would be encouraged to provide greater relief to borrowers who are in less need of help while offering scant assistance to the most troubled homeowners.” These were the terms of “a proposed $25 billion settlement between the nation's five largest banks, attorneys general in nearly every state and the Obama administration.” The banks “would receive greater credit toward satisfying the terms of the deal when they help borrowers who owe less than 175 percent of the value of their homes. Helping borrowers who owe more than 175 percent would qualify for less credit.” It is as if the homeowners most under water were being presumed to be at fault, even in the case of liar’s mortgages foisted by bankers.

The terms of the proposed settlement suggest that the elected representatives were less oriented solving the housing crisis than to collecting campaign contributions from the banks. “To really make a difference in the housing crisis, you have to assist high [loan-to-value] homeowners," said Diane Thompson, an attorney at the National Consumer Law Center. "Otherwise, at some point, they're all going to walk away from their homes.” The banks had long been resisting calls to forgive large portions of loan balances in order to avoid recognizing losses. According to the Huffington Post, the settlement’s terms “appear to satisfy the banks on this point, minimizing the pressure to hand out relief to severely underwater borrowers.” The unfairness can also be seen from the conflict of interest in the stipulation that “states whose residents appear to be victims of illegal foreclosures could take such cases to a committee headed by North Carolina's banking commissioner.” The mechanism reflects the banking lobby effectively heading the settlement between the banks and the government officials. In other words, the banks get to write their own settlement, even though they had been at least partially at fault, as in their liar loans and robo-signing mechanism.

Even giving bankruptcy judges “the legal authority to modify principal balances on mortgages in a way that is fair to both parties,” which “would have allowed more than a million ordinary Americans to keep their homes,” was too much for the banking lobby. It got the U.S. Senate to vote down the amendment in 2009 even as banks were foreclosing on millions of Americans. David Kittle, chairman of the Mortgage Bankers Association, gleefully said, “We led the way on this, and we are clearly responsible for defeating this for the third time in the last year.” Meanwhile, Sen. Dick Durbin (D-Ill.) told a radio host, “And the banks—hard to believe in a time when we're facing a banking crisis that many of the banks created—are still the most powerful lobby on Capitol Hill. And they frankly own the place.” This was a striking admission, as was the banks’ dominance a year after the financial crisis—a near-meltdown in which the banks played a significant role.

The Huffington Post points to the numbers: “The finance, insurance and real estate (FIRE) sector combined to spend $6.8 billion on federal lobbying and campaign contributions . . . from 1998 through 2011. . . . That's $1 billion more than any other sector spent on Washington.” Lawmakers are under such pressure to amass campaign cash that the contributions buy the contributors access, and thus influence. The American Banker’s Association, the U.S. Chamber of Commerce, and the Business Roundtable multiply the bank’s influence even more. Additionally, the lobby can utilize the influence of community banks and credit unions, which goes far beyond their role in the economy. The fear voiced in the constitutional convention in 1787 that Congress would become an aristocracy based on wealth—being disproportionately oriented the moneyed interest—had come to pass well before the financial crisis of 2008.

So it should be no surprise that in May 2010, when Sen. Tom Harkin (D-Iowa) sought to cap ATM fees--noting that “ATM fees average $2.50 and can run as high as $5 . . . while the real cost of processing a transaction is about 35 cents,” the banks “opposed the idea, arguing that capping fees would just lead to fewer cash machines, including those owned by banks.” As a result, there wasn’t even a floor vote. His own floor leader, Harry Reid, denied it because Republicans had not agreed to it. In short, banks get their way on both sides of the aisle. The republic itself serves the banks even when they have acted badly or unfairly. Even if this means that democracy is a sham in the U.S., even such a recognition would not be likely to make a difference—the electorate so dispersed and disoriented, even subtly manipulated against its own interest in democracy. In other words, I do not see the plutocracy ending any time soon.

College Rankings: Reading Between the Ranks

2012-02-02T13:41:00.004-06:00

There is a dirty little secret about college rankings that people who fixate on them do not know, even though it is about them! First, let’s look at the game that the “rankings crowd” is accustomed to playing.

Marketing the "exclusive" rankings of the "best" colleges. NYT

According to the New York Times, “several colleges in recent years have been caught gaming the system—in particular, the avidly watched U.S. News & World Report rankings—by twisting the meanings of rules, cherry-picking data, or just lying.” A senior executive at Claremont McKenna in California admitted to reporting false SAT scores, overstating them by 10-20 points, in order to get a better ranking. Iona’s false-reporting “earned” it a 20 place leap in its category. In 2011, the law schools of Villanova University and the University of Illinois acknowledged that they had misreported some statistics. The United States Naval Academy, famous for its honor code, was charged with inflating the number of applications. All this can be read as a bunch of mid-level schools cutting corners for a few crumbs, even if the rankings are taken seriously at their level.

What I am suggesting is that taking the rankings seriously is itself an indication of “second-tier” at the very least. At the very best universities, the rankings are almost dismissed out of hand. They are certainly not relied on or viewed as significant. This is not because those universities do not fair badly in terms of the rankings. Rather, they are known to be inaccurate. In fact, the false-precision alone belies the rankings. It is perhaps like an airplane pilot announcing on take-off at JFK that touchdown at Heathrow will be at 9:35 and 36 seconds. Lest there be an unexpected gust somewhere over the Atlantic, the actual touchdown could be at 40 seconds. Should a pilot make such an announcement, the passengers would understandably be concerned about spending the next several hours dependent on that pilot. I suspect that we are so used to the pretention of over-precision that we don’t even recognize it when it is happening. Typically, it is 99% pretention, 1% substance. I get a kick out of seeing it when I visit my hometown, as it is so ubiquitous there—the people being so utterly pretentious under the rubric of trying to be “professional.” In actuality, as in the local news broadcasts, they end up looking like serious fools in their excessive “professionalism” even as they do not even suspect it. It is like watching children pretending to be adults while actually thinking they are actual adults.

Here’s the dirty little secret about rankings. It might surprise you what separates the men from the boys. At the best schools, reports of high rankings tend to be dismissed, at least in campus newspapers, by deans that would otherwise benefit from the results. Particular rankings are not usually a topic of conversation among students. There is no need. In attending such a university myself, I never looked at my program’s ranking. I happened to notice a few years after graduation that my subject-area was tied for first in the U.S., and even then I didn’t bother to see where the university ranked among the top few. It just didn’t matter to me, and it still doesn’t.

Nowadays, when I hear a student somewhere start out with, “I’m going to X university, and my program is ranked 3rd,” I immediately discount that student's claim to be among the best. More often than not, a specific program is ranked so high because it is so specialized that there are only four such programs in the United States. Moreover, the student’s emphasis on ranking is itself sufficient for me to place the student in the second-tier (at best) because first-tier students don't tend to pay a lot of attention to rankings. Sometimes when I try to explain that rankings are not that important to a student who insists that they are, the student assures me that he or she cannot be wrong—rank is important and his or her program is excellent because it is ranked highly. The arrogance alone that goes with the ignorance that cannot be wrong actually just confirms for me that I had been correct in my assessment of the student. In other words, in saying, “my program is number 3 in the country,” a student has belied the validity of the statement just in saying it. The confirmation comes in how it was said.

It would be like someone saying, “I am majoring in math. The math department at my college is number one in California and, by the way, 2+3=6.” The presumed certainty alone shows a lack of passion in learning as distinct from pronouncing on what one supposes one already knows. Paradoxically, professors at excellent universities can sometimes be distinguished from colleagues at lesser schools on precisely this basis. Whereas a passion for the unknown breeds humility, pride in what one does know (or presumably knows) can engender a full-blown case of arrogance. I can't tell you how many "scholars" of the latter category I have met. They are identifiable easily enough from their tone alone. It would almost be comical were it not so insulting to hear it at a mediocre university (i.e., as if entitled)—and, of course, the offender is utterly confident in assuming the tone of innate superiority. It should be no surprise that the administrators at such universities have been submitting fraudulent data to secure a ranking that is deemed "fitting."

What should we make of colleges and universities cutting corners on college rankings? The activity itself points to the fact that the ranking is viewed as important by the faculty administrators. There is of course the rare administrator, such as Jon Boeckenstedt at DePaul University, who willingly admits, “The reliance on this is out of hand. It’s a nebulous thing, comparing the value of a college education at one institution to another, so parents and students and counselors focus on things that give them the illusion of precision.” In spite of his doubtlessly pretentious use of “nebulous,” which really does not fit well in his statement (no need to look it up), Boeckenstedt offers up some pretty good insight. To be taken in by an illusion is itself a mark of a low rank, educationally speaking, as there are indeed people, including students and deans, who are not taken in. It is ironic that those who would get the most pleasure from the rankings do not because they know better. Meanwhile, the rest fight for bread scraps under the illusion that they are fighting for steak. Entering into the fray is itself an admission of low rank, even if one happens to be bragging about having secured a particular morsel. This is the dirty little secret about college rankings.

What continues to amaze me is that the rats and particularly the super rats presume they cannot be wrong even when corrected. It is as though knowledge is in the blind-spot of ignorance. College rankings are on the ignorance side of the ledger, so the game of lies by people of the lie will undoubtedly continue unabated though perhaps more furtively now. It is too difficult to persuade a person that what he or she assumes to be important is but a mere sideshow fit only for the servants’ quarters on the ground floor of Downton Abbey. For over-esteeming a ranking is essentially to over-reach from below (no administrator falsified data downward, as if to say that the students are too smart or the college too good). In other words, from where does one have occasion to over-reach?

Source:

Richard Perez-Pena and Daniel Slotnik, “Gaming the College Rankings,” The New York Times, February 1, 2012. http://www.nytimes.com/2012/02/01/education/gaming-the-college-rankings.html

Direct and Representative Democracy: Colorado on the Hot Seat

2012-02-01T21:55:00.002-06:00

In ancient Athens as well as Renaissance Florence, direct and representative democracy co-existed. The representatives elected or chosen by lot were viewed (and viewed themselves!) as standing in for the people assembled. From a practical standpoint, it is difficult even to legislate by town hall meeting or by a series of referendums on election-day. Accordingly, power in democracies has been delegated to representatives and even appointees. In February 2012, this principle, and direct democracy itself, were set to be challenged in a federal lawsuit against Colorado. In my view, the principle is valid whereas the suit is not. Direct democracy outranks representative democracy—the latter having been created not to save a people from themselves but out of sheer practicality.

Colorado's Capitol (seat of government) Matthew Staver/NYT

The object of the lawsuit is Colorado’s 20-year-old taxpayer-controlled budgeting process known as Tabor, which requires that tax increases (and presumably spending increases) be passed by referendum rather than legislative vote. The 33 plaintiffs argue that Colorado’s Taxpayer Bill of Rights “blocks the ability and jurisdiction of the . . . Legislature to properly do its job.” The rationale is that subjecting tax increases and budget figures to popular referendum usurps Colorado’s legislature’s prerogative. In the early U.S., James Madison had “pushed strongly for a barrier between the passions of the popular will and sober governance . . . through a legislative branch.” Representative governance, in other words, has the benefit of acting as a check on popular passions in the best interest of the people. This objection could be obviated by requiring a revote in a year or two to make the referendum’s results final.

I submit, however, that Madison’s concern is trumped by a more basic relationship that undergirds the relationship between direct and representative democracy: that between the popular sovereign and government. Arguing on the basis of a benefit such as checking passions, for example, is not to furnish a rationale for prerogative. In other words, that the popular sovereign may not always be wise or prudent does not mean that its agents therefore trump their principals—the people. Even if an agent has expertise that his or her principal does not have, this does not, as in the business judgment rule, necessarily mean that the agent becomes the principal (and the principal, the agent). In the case of corporations, maximizing profit is merely the default—something the owners should be able to deviate from and their hired hands (e.g., executives) would be obliged to devise strategy in line with the new mission.

If, as the plaintiffs claim, Colorado’s legislature is “unable to raise and appropriate funds” and thus “cannot meet its primary constitutional obligations” under the “guarantee” clause of the U.S. constitution, it is because the principal has taken that constitutional role back, through fully constitutional means, which the popular sovereign, as the principal, has the right to do. Remember, the people as a group have delegated authority to representatives.

In other words, popular and governmental sovereignty are not incompatible. Constitutions are ratified not by the member governments, but, rather, by the people, precisely because the authority of the people goes beyond that of their agents. The popular sovereign does not have to continue even with its constitutions. Indeed, that sovereign could change any American constitution in any way that sovereign desires, as per the Constitutional Convention of 1787. We could even hold a convention proposing a totally new constitution and with its ratification the current one would instantly be dust. Remember that the Constitutional Convention of 1787 tossed out the guidelines set by the Continental Congress limiting the convention to amending the Articles of Confederation. The convention started over and invented modern federalism in the process. I raise this point only to show that a popular sovereign trumps its government—really by definition. Yet it seems that the legislators in Colorado have their arrows crossed concerning this relationship—most likely a case of good old-fashioned arrogance.

Rather than the Colorado legislature being hamstrung, it is the obligation of the dutiful agents to furnish their master, the popular sovereign, with options that do not privilege the agents themselves or their body over the principal. General tax policy and overall budget numbers decided by the popular sovereign are more legitimate than had they been decided by legislative means even if the people are stupid and willful. This difference in legitimacy exists because the popular sovereign is politically superior to its agents. It is not really a question even of getting the best policy—“best” at this level involves judgment rather than the expertise of a legislator, professional or scholar, anyway.

Instead of being usurped by agents who take themselves as principals and thus somehow illegitimate in a democracy, direct citizen lawmaking is an ideal toward which we should strive to the extent that it is practicable. The agents have too often succeeded in limiting the actual sovereign to speaking once every two or four years, and then only on the vague decisions of filling offices, leaving policy decision to themselves. All too often, this means nothing gets decided, which I submit reflects the tenuous authority of the agents to be definitive for the people. One reason why the Congressional vote on health-care did not settle the matter is because the people themselves did not have a direct say on such an important, life or death, matter. Similarly, the ongoing controversy on abortion partially reflects the “limbo” status from how it was decided (i.e., not by us, as in direct democracy).

Policies like declaring war (in a non-emergency), abortion, whether to extend a tax cut, overall deficit spending, overall drug policy (e.g., legalization), and especially constitutional amendments bearing on government should be up to the people, with the judiciary stepping in when needed to protect individual rights against either legislative or popular encroachment via majority rule. Should abortion be decided by the states? Should the Bush tax cuts be extended for all or excluding the rich? Should the U.S. get out of Afghanistan? (Should the U.S. have invaded Iraq?) Should pot be legalized? Should financial regulation be strengthened or is deregulation the general principle we want to follow? Considering health-insurance, should it be by a public single-payer, a public option with private options, or exclusively by existing private insurers? Should everyone be covered or just those who can pay? The questions would have to be very basic and oriented to basic judgment calls, rather than requiring expertise; our legislators could see that it is incorporated under the rubric of the general principles decided by us.

Along this line, constitutional questions bearing on our system of government are particularly legitimate for direct decision—such as on the role of the states and whether we should have more of a federal or consolidated system. Should corporations be considered as persons, politically? Should money be deemed as “speech” politically? A degree in law is not required to make a judgment on such basic governmental questions. Even the Greek slave Meno knew geometry without being taught, according to Socrates. In fact, experts, like legislators, are properly agents of the popular sovereign, rather than being an alternative wiped out by direct democracy but somehow integral to the legislative process. Federal constitutional amendments in the U.S. could be ratified by referendums (as is already the case in some of the E.U. states in ratifying amendments to E.U. basic law). Amendments could even be sourced in referendums. As it stands, the American people have no direct say on changes to the U.S. Constitution—either in proposing or ratifying amendments. Nor do we have the opportunity to have a say on the existing planks—something Jefferson thought every generation has as a right. Would it be so traumatic were sections of the U.S. constitution forced to compete with a few alternatives, taking say one Article every four years? This is just one of many ways the American people could decide on what binds us.

Admittedly, such changes expanding direct democracy would indeed alter the nature of legislative business; it would more closely resemble what one would expect to find from agents (e.g., technical working out of broad policies already decided and working on submissions for further “instructions”). As a people, we have allowed ourselves to be hoodwinked into viewing our agents as our principals, and this is reflected in the power they have with respect to a near-monopoly on decisions. It is no wonder that the Colorado legislators feel threatened by something that is decided by others. Those legislators suffer from a rather basic category mistake: conflating themselves with their principals. Out of this error has come the representatives’ assumed false entitlement to the near-monopoly that they have enjoyed while the rest of us have been asleep. I can’t even add “at the wheel,” for we have ceded that to our driver without even supposing that we have the right—as the owner of the car—to tell him where to go. We are Ms. Daisy sleeping off a hang-over in the back seat while Morgan Freeman decides where we’ll go. We even expect him to decide, as if it were his job. We are indeed quite asleep. Perhaps we don’t deserve direct democracy?

Source:

Kirk Johnson, “Colorado Lawsuit Challenges Wisdom of the Ballot Box,” The New York Times, January 31, 2012. http://www.nytimes.com/2012/01/31/us/legal-challenge-to-colorados-tabor-amendment.html

State Fiscal Governance in the E.U.: Toward Balanced Union

2012-01-31T20:23:00.005-06:00

At the end of January 2012, 25 of the 27 E.U. states (all but Britain and the Czech Republic) indicated at a meeting of the European Council that they would accept in principle (i.e., subject to ratification) a new limit of 0.5% of gross economic output over a complete economic cycle for the states’ “structural budget deficits” and strengthen the E.U.’s enforcement mechanism on states that breach that limit on deficits and 60% of gross output for accumulated state debt. The Wall Street Journal reported at the time that the “0.5% deficit limit would, if obeyed, mark a revolution in [the states’] fiscal policies, ending more than 30 years of steadily rising [state] debt.” This statement is immediately undercut, however, as the Journal describes the extent of the loopholes in the amendment. The reader is left wondering whether the E.U. will use the proposed enforcement mechanisms, such as the ECJ imposing fines on states already hard up for cash, as well as whether fining a state government would make any difference.

According to the Journal, the proposed non-official E.U. amendment (unofficial on account of objections by the state of Britain)—which is not a “fiscal union” or worse still “ever closer fiscal union” as if the E.U. were merely a common market or NGO—“allows plenty of fiscal elbow room.” In other words, the rumors of the impending death of Keynesianism are grossly exaggerated (the claim that the proposed amendment is “fiscal union” involves considerable exaggeration too).

The Journal explains that a “structural” budget balance “allows for deficits to rise automatically in hard economic times, through higher social spending and lower tax revenues, provided the government saves money in good times.” There’s the rub, if you ask me. Does the proposed amendment include any teeth to force a profligate state government to raise taxes and cut spending during economic booms? Might the means of countering deficits in bad times lag legislatively and thus be likely to cut into, or even begin with, the next bust? The fundamental flaw in Keynesianism—the lack of political will in good times to counter the deficits accrued in bad times—could still exist, although theoretically the 60% limit on accumulated state debt provides a ceiling.

Sarkozy, Merkel and Monti at the European Council Meeting
Philippe Wojazer/Reuters

Sure enough, the proposed amendment allows for “net of one-off and temporary measures,” such as stimulus spending during downturns. Even more deviation from a balanced budget would be allowed if a downturn is deemed to be “severe,” which is already defined as a decline of GDP of more than 2 percent. Of course, the hope is that states would not have fiscal-stimulus policies in place permanently. So the question comes back to that of enforced self-discipline during the good times—precisely when such discipline is most difficult. Indeed, Mario Monti of Italy secured an exemption for states with excessive overall debt from the measures which make it more difficult to block the sanctions. That the proposal itself was drafted precisely because of states like Italy and Greece suggests that the exemption enervates the amendment even before it has been ratified by the states. Moreover, the exemption suggests that the extent of state leader involvement at the E.U. level may be too much for the union’s own good. Admittedly, the U.S. suffers from the other extreme—treating them as outsiders.

The Journal tries to make some E.U.-U.S. comparisons regarding the proposed amendment. The reporter points to the U.S. states that have “some kind of balanced-budget rule.” However, the paper does not point out that unlike the proposed change in the E.U., the U.S. governmental or judicial institutions cannot enforce those rules; only the governments or courts of the respective states can do that. So in this respect, the E.U. would be more federal. Moreover, a U.S. governmental institution cannot cap a state’s deficit or debt. Furthermore, whereas the ECB has been buying state debt, the Fed cannot legally bail out any state government by buying government bonds. However, the U.S. is more federal—even consolidated almost—in that there is much more fiscal redistribution from state to state via the federal taxing and spending clauses of the U.S. constitution. Member states in trouble can thus get more federal funds without necessarily aggravating their deficits.

Whereas in the E.U., where the state governments still do most of the taxing and spending, the situation is the reverse in the U.S.—a function of what can happen in a union through the centuries (the E.U. being about 50 and the U.S. being over 225). Indeed, the consolidating tendency may be akin to a hardening of the arteries. Whether the E.U.’s states will continue to be a check on increasing power at the federal level is an open question, which I’m inclined to answer in the negative were I to look beyond the current generation in Europe. What you fight against today tooth and nail may be tossed aside like a horse-led carriage by your great grandchildren.

The proposed amendment, like the tenth amendment of the U.S. constitution, will, as Michael Saunders of Citigroup says, “get interpreted flexibly over time, according to the desires of the day, rather than the intentions of their creators.” Compounding this are the loopholes, including that of stimulating economic growth, and the matter of the E.U.’s enforcement mechanism applying to states during good times, rather than just when an accumulated debt reaches 60% of a state’s annual economic output.

State leaders such as Merkel and Sarkozy who have been behind the proposed amendment know full well that its significance lies in viewing it as a step to be followed by still others, toward ever closer union, which has come about gradually and in fits and starts. Doubtless those leaders do not take their proposed amendment as anything more than a start—albeit a necessary one though perhaps mostly perceptually, as it does not address the matter of bubbles and the impact of private debt in Ireland and Spain. The added authority to be given to the ECJ (and presumably the Commission) is apt to be followed by still more setbacks for the E.U., yet the proposal can still be viewed as part of the upward slope toward achieving a balance of power that is so important to a viable federal system. It could very well be that that balance is to be attained for one “track,” while a few states treat Europe more like a “network.” Referring to Britain, Sarkozy observed, “There are different degrees of integration and everyone is free to choose where they stand” (NYT, 1/31/12). While a “multi-track” trajectory could be viable, I suspect that the “few” who continue to insist that the E.U. is merely a network would drift further out—like Pluto, were it, being so far out (and not even a planet), insufficiently held by the sun’s gravity even to keep its current distance—while the federal states (i.e., those not in denial) continue to integrate.

It is a good sign that the state and federal leaders proposing the amendment did not hold their plan hostage to Britain. It is also notable that the amendment is stipulated to go into effect for those states that agree to its terms once 12 or more of the states using the euro have ratified it. As many as five states that use the euro can say no or fail to act and the amendment goes into operation anyway. In the wider perspective of the “fits and starts” that have characterized E.U. history, this procedural change does not (yet) apply to proposals to official E.U. basic law, which still require unanimity. Even so, the new procedure is a start indicative of European leaders thinking of the E.U. differently. I suspect that this achievement is more significant than the proposal itself in terms of the European Union continuing as a viable federal system—dodging a bullet, as it were.

Sources:

Marcus Walker, “Budget Treaty: Neither Panacea Nor Poison,” The Wall Street Journal, January 31, 2012. http://online.wsj.com/article/SB10001424052970203920204577193020562230202.html

Stephen Castle and James Kanter, “European Leaders Agree to New Measures to Enforce Budget Discipline,” The New York Times, January 31, 2012. http://www.nytimes.com/2012/01/31/world/europe/eu-leaders-fall-short-of-far-reaching-debt-solution.html

A Dangerous Method

2012-01-30T21:35:00.000-06:00

The method being referred to in A Dangerous Method (2011) is psychoanalysis, as pioneered by Sigmund Freud (1856-1939). The danger referred to is that of freeing people from their sexual repressions. The film revolves around the relationship between Freud and his younger colleague, Carl Jung (1875-1961), and the relationship between him and Sabina Spielrein, his former patient and eventual lover and colleague. She also had an affair with Freud, but it was not shown in the film. Keira Knightley plays the Russian woman a bit too strongly in the first few scenes. In terms of the acting, Knightley exaggerates facial contortions as if fishing for an Oscar out of sheer emotionality. In terms of the narrative, Spielrein’s “transformation,” or cure, is hard to take as credible because it is so drastic within a year or two. Before long, she is behaving completely normal and even attending medical school. The film’s merits lie not with the acting, but, rather, with the intellectual content, whose salience and integration into a good narrative is rare in Hollywood. It is due to this feature that the film is apt to stay with a viewer for some time.

For example, the Russian woman had been beaten by her father when she was a girl. She tells Jung that the experience of being beaten used to excite her sexually. When she and Jung began their affair, she told him to punish her, which he dutifully did (though he did seem to enjoy it, as the sex with his wife was always “tender”). Perhaps Jung’s own animus and anima had each found a home. One of the issues explored in the movie is whether freeing up the woman not to repress what excited her constituted progress toward mental health. A rather free-spirited colleague of Freud and Jung provides the affirmative argument, while Jung is more hesitant (even as he moves from spanking to a belt).

I was surprised that none of the psychiatrists in the film voiced the view that the woman’s “excitement” in being beaten might be a misdirected or misinterpreted desire to recover her father or have the father she never had, emotionally speaking. In other words, the feeling of being hit represented that of her father that she had, so she was drawn to it. If I’m right, the underlying desire was not sexual.

How many women are “attracted” to “bad boys” without realizing that the desire is to recover a father by means of the only thing “father” had meant? Ultimately, the alley is a dead-end. The woman does not get her father back, or even the feeling of having one, emotionally-speaking. Is freeing up a woman from repressing a dead-end a good thing? Does it help her get what she really wants? I think the answer is rather obviously no.

Aside from the questions revolving around Jung’s former patient and lover, the film discusses the interesting question of whether a new field can afford to “take risks,” such as in Jung’s interest in parapsychology and religion. His contribution to the psychology of religion is significant—more so than Freud’s Totem and Taboo. However, Freud voices a legitimate point that the emphasis on sexual explanation in psychoanalysis would be than more than enough scandal in the second decade of the twentieth century, so soon after the Victorian era. At about the same time, or a decade or two earlier, Nietzsche’s controversial writings had been very controversial, particularly on religion. Adding a plethora of sexual interpretation to dreams would indeed arouse plenty of resistance. This debate played out as relations between Freud and Jung became increasingly strained before they parted company altogether.

Both with regard to the question of repression and a “cure” and that of how a new firm should develop, the filmmaker did an excellent job in grounding the ideas to characterization. While I would have enjoyed a PBS special on the ideas themselves, integrating theories around narrative and characters is useful both in terms of understanding and as a fruitful avenue for Hollywood, which could be accused of putting out too many mindless action flicks that catch the biggest market segment and allow for merchandizing. Another film from 2011 that effectively integrates theory with narrative and characterization is Hugo.

See: A Dangerous Method

The Elusiveness of Innovation: Google vs. Apple

2012-01-29T12:36:00.001-06:00

We do not know as much as we think we do about innovation. Rather than being able to “bottle” it, or “program” organizations for it, the nature of innovation still eludes the human mind, except for in hindsight. This can be seen from contrasting the approaches of Google and Apple.

The approaches of Google and Apple to innovation together evince the “archetypical tension in the creative process,” so says John Kao, an innovation consultant to corporations and governments. Having recently seen A Dangerous Method, a film on Sigmund Freud and Carl Jung, I wonder if Kao understands what “archetypical” means. An archetype is an image/emotion combo that recurs in human history, including in legend, folklore and mythology, out of a basis in the human mind itself. The old wise man with a grey beard is one such archetype. Levi Strauss theorized that a myth has at its basis an attempted resolution of polar opposites, which I suppose could be archetypes. To say that such archetypes are in the creative process itself strikes me as gilding the lily of a faddish term.

Regarding Google, Steve Lohr of the New York Times writes of Kao’s description of the company’s innovation method as relying “on rapid experimentation and data. The company constantly refines its search, advertising marketplace, e-mail and other services, depending on how people use its online offerings. It takes a bottom-up approach: customers are participants, essentially becoming partners in product design.” Again, this depiction gilds a lily. A bottom-up approach refers to employees rather than customers. Moreover, the latter are not “participants” in a company, as are employees. Starbucks’ opportunistic use of the word “partner” to describe an employee aside, customers are not partners because they do not have a share of power in a corporation.

Marketing-oriented descriptions aside, the innovation method at Google is inductive, meaning from particular cases, or data. Lohr reports, “Google speaks to the power of data-driven decision-making, and of online experimentation and networked communication. The same Internet-era tools enable crowd-sourced collaboration as well as the rapid testing of product ideas — the essence of the lean start-up method so popular in Silicon Valley and elsewhere.” The emphasis here should be placed on a multitude of specific product ideas rather than on the collaboration, for “while networked communications and marketplace experiments add useful information, breakthrough ideas still come from individuals, not committees.” As Paul Saffo, a technology forecaster in Silicon Valley, observes, “There is nothing democratic about innovation. It is always an elite activity, whether by a recognized or unrecognized elite.” Therefore, we can dismiss the promotional language of customers as “participants” and “partners.” Even in the bottom-top approach in terms of employees, it is not as though innovation percolates up from every employee, as in “one person, one vote.” In fact, the inevitable sublimation of the innovator-elite can compromise even the “bottom-top” feature of the approach. Perhaps it can be concluded that Google is relatively open to innovation coming from any employee.

Lohr reports that “(t)he Apple model is more edited, intuitive and top-down. When asked what market research went into the company’s elegant product designs, Steve Jobs had a standard answer: none. ‘It’s not the consumers’ job to know what they want,’ he would add.” In other words, people in general don’t really know what they want. I have the impression that Jobs would have said the same about his employees, as “top-down” actually refers to within an organization and customers are middlemen or the end-users, rather than “participants.” Even if they are considered as “stakeholders,” customers—unlike employees- are organizationally extrinsic. Yet from the standpoint of vision-led innovation, most employees are “conventional,” living in their day, and thus extrinsic to the creative process out of which innovation comes. The notion of innovation coming from an elite is thus even stronger in Apple’s deductive approach wherein a few innovators at the top of “visions” out of which a number of new product designs (e.g., ipod, ipad, smartphone) are sketched and developed, than in Google’s inductive approach.

Generally speaking, more innovation in a given product from those that are extant is likely to come from a vision of a different society or way of life. The “cost” is that relatively few people are relied on in the innovation process. An organization such as Apple was limited, for example, by Steve Job’s vision as long as he was running the company. Had Jobs survived, the innovative limits of his vision would surely have been realized at some point, for any given paradigm has its limits—even if in terms of its underpinning assumptions. Relatedly, a company can be seen to be limited by putting a lot into its leader’s vision.

As elitist as Job’s statement may be even with respect to employees, he may have had a point that virtually no customer could have anticipated the ipad even five years before it was designed inside Apple. Moreover, it is nearly impossible to project in 2012 what daily life will be like for people living in 2050—even 2030. Could anyone in 1912 have anticipated the ubiquitous radio and the “talkies” in 1930, much less the aeroplane as a major means of commercial travel? At best, people could have projected that the electric light and the strange horseless, or auto, “carriage” would take off. Broaden out from 1900 to 1940—roughly half a lifetime—and the inability of people to forecast innovation even within their lifespan should be obvious. Only from retrospect can the ipad be taken as obvious or inevitable. The sight of the human mind is predominantly oriented backward. Innovation, whether in terms of ideas or products, is thus likely as much by accident as by vision, yet Steve Job’s vision is hard to deny even as even it must have been delimited by the nature of a vision and that of the human mind.

In conclusion, innovation still eclipses leadership and (especially) organizational processes and procedures. The phenomenon is that of the individual, which makes prediction notoriously difficult. Indeed, innovation itself is difficult if not impossible to project out even a few decades. The creative genius that is human continues to elude our forward grasp even as we live in an era primarily characterized by its technological innovation rather than political, religious or economic progress.

Source:

Steve Lohr, “The Yin and the Yang of Corporate Innovation,” The New York Times, January 28, 2012. http://www.nytimes.com/2012/01/27/technology/apple-and-google-as-creative-archetypes.html

A Future of Regulators at Fault?

2012-01-28T08:54:00.000-06:00

The typical case in the U.S. is that the industry being regulated resists being regulated, while the regulators insist on enforcing the regulations. To be sure, particularly strong firms in an industry may propose incremental regulations for strategic advantage—knowing that smaller or less profitable firms in the industry would have more trouble complying financially. The strategic use of regulation is an under-appreciated phenomenon in the de-regulation movement. Perhaps even more bizarre is the case of an industry complaining about lax enforcement of existing regulations and demanding even more. What industry might fit this bill? As a hint, look for a major scandal that did reputational harm to an industry.

In the industry, the firms’ calls for a crackdown must contend with a legacy of a light regulatory touch.” People in the industry question whether regulators have been “too gentle” on the firms. If a firm “runs afoul of the rules, regulators largely rely on the firms to report their own wrongdoing.” It sounds like Andy Taylor’s jail in Mayberry—the keys are hanging on the wall, help yourself Otis (he was the drunk). From 1996-2011, regulators penalized only ten firms, letting scores of others off the hook “because [the] regulators deemed their violations accidental.” The sounds like the work of Andy’s deputy, Barney—find the loot only to lose the criminal.

I am describing the futures industry, whose firms, “ordinarily loath to accept regulation,” decided in the wake of MF Global’s collapse and loss of $1.2 billion of customer money to spearhead efforts for “new oversight as they try to heal the black eye.” In its article, the New York Times describes the existing regulations as nearly non-existent. For example, “firms need not inform customers of the whereabouts of their money.” It is no wonder that prospective customers would be hesitant to enter that arena—hence the firms’ financial interest in additional regulations. The question is perhaps why the regulators had not recommended any to Congress.

Without the usual vested interests thwarting prospective regulations bearing on themselves while Congress stands by and takes the contributions, any additional regulations “spearheaded” by the industry can be expected to be enacted. The question, I suppose, is whether the regulators will feel like enforcing them. With no headwind from the industry, lax enforcement would be an interesting nut to crack. Could it be that regulators exist who don’t believe regulations are very important? Such a mentality would be the opposite of public service—something like agnosticism in religion, only as held by clerics. Such a thing simply is not expected, hence it is worth investigating.

The most likely explanation is that the regulatory agency was “captured” by its industry, and ultimately it was in the interest of the industry itself to come up with something stronger. If so, might it be that once the new regulations are up and running, particular firms or the industry as a whole might want to capture the agency again? Even in following the industry’s “spearheading,” the agency is essentially “captured.” Is it the case in the American system more generally, that agencies are captured by their regulatees whether in increasing or decreasing enforcement? In other words, might the business and financial sectors be too powerful over government for their own good—like children telling their parents when to discipline them and when to let them get away with something? The sectors—and in particular their largest firms—may be too powerful for a viable republic: TBTG, meaning too big to govern. TBTF might not be the biggest elephant in the living room after all.

Source:

Ben Protess and Azam Ahmed, “Insiders Call For Oversight of Futures,” The New York Times, January 26, 2012. http://dealbook.nytimes.com/2012/01/25/futures-industry-sees-chance-to-shape-oversight/

Catholic Contraception Coverage: Accommodating Partisan Politics as Religion

2012-01-26T17:06:00.005-06:00

Nailing down the boundaries of religioncan be difficult. Complicating the task is the propensity of vested intereststo distend or even break through the limits on what counts as a religious functionor organization. The case of whether Catholic-affiliated organizations that“do” education and health-care should be exempted from federal regulationsrequiring employers to pay for birth-control in their health-insurance plansfor employees (and) illustrates the problem. I don’t think the issue isconstitutional because the matter of birth control is not religious, even inCatholic terms. I contend that the real issue is one of partisan politics goingback to “Obamacare,” and ultimately of anger under the subterfuge of religion.

On January 20, 2012, the Obamaadministration announced that employers with a religious affiliation having“moral objections to birth control” would have to provide all forms of contraceptionapproved by the Food and Drug Administration without co-payments or deductiblesfor health-insurance policy-holders. Churches and other houses of worship wouldstill be exempted, but not hospitals, schools, and charities. Catholic-affiliatedhospitals, schools and charities had petitioned the U.S. Department of Healthand Human Services to recognize them as religious groups. Had they beenrecognized as religious in nature, the implication would have been that givingshots, operating on patients, and teaching non-religious subjects are somehow“religious” in nature. Potentially, virtually any function could be deemedreligious in nature and the free exercise clause of the First Amendment of theU.S. constitution would mean that anyone could declare oneself exempted fromany given law on religious grounds. David Boie, who represented Al Gore in Bush v. Gore (2000) said that “freeexercise” does not mean that a religious organization can be exempted from alaw that covers everyone. Rather, such an organization can sue the U.S.Government should it pass a law tailored to the organization—to stop it fromengaging in a religious expression. Some “free exercise” advocates, however,presume that religious organizations have a blank check regarding laws thatcover everyone and thus do not discriminate against a religion. Constitutionallaw does not support that position.

I contend, moreover, that theconstitutional question does not properly arise in this case, for the moralobjection is not in itself religious. Archbishop Dolan referred to even Obama’scompromise that the insurance companies pick up the tab as calling on theCatholic Church “to subsidize something we find morally illicit” (italics added).Yet he went on to characterize it as a “religious practice,” essentiallytreating morality itself as a religious practice like prayer or taking theEucharist in a religious ritual. In other words, even as Catholic hospital anduniversity organizations came out in support of the president’s compromise, theCatholic bishops were opposing it without a clear notion of how the practice ofbirth control relates to religion.

If wearing a condom or taking “the pill”interferes with a religious practice, then having unprotected sex is theequivalent to praying or attending Mass (e.g., taking communion). I don’t knowof any Catholic official who would argue this with a straight face—as ifCatholics could legitimately (i.e., on religious grounds) sleep in on Sundaymornings as long as they have a little sex and this would count as a religiouspractice. The distinction between a moral and religious doctrine takes a bitmore explanation.

Historically, it was thought in theChristian West that one could not be moral without being religious. Thisassumption involves a category mistake. Were religion essentially morality, theBook of Job would be a tough nut to crack, for Job is not treated ethicallythough God allows the devil to abuse the righteous man. Moreover, God could notbe all-powerful (omnipotent) were religion subject to our moral systems. Werereligion oriented to morality, or should appliedto conduct in this world, thetranscendent aspect of religion would either be eclipsed or relegated. A moralposition is therefore not a religious practice.

In using birth control, the vastmajority (98%) of Catholic women in a position to use birth control (e.g. sexuallyactive) use it. A New York Times/CBS poll issued soon after Obama announced thecompromise found that 57% of Catholic voters supported the requirement forreligiously affiliated employers, like hospitals and universities, to cover thefull cost of birth control for their employees, while 36% opposed it. There wasalmost no difference between Catholic and other voters on the question.Presumably the percentage in support of the president’s compromise (i.e.,insurance companies pay) was higher. Were having sex unprotected every time a religious doctrine or practice, the bishops would not have been soupended by their own flock.

Undoubtedly most Catholics simplyconcluded that their bishops had over-extended themselves into a non-religiousdomain (e.g., a moral question, or a health issue for women). Put another way,the fact that the bishops were not being followed by most of their flockundercuts the bishops’ credibility (or legitimacy) even in their own domain—that of religion. By presuming toover-extend one’s influence, one undercuts even one’s viability in one’s ownbackyard. The real story behind the story is the bishops’ irrelevance even to Catholics.

Following Dolan (someone apparentlyneeds to) on birth control being “morally illicit,” I would argue that peoplehave moral objections to government policy all the time; giving religiousofficials a pass simply because of their religious roles (e.g., in worship) isnot fair to other citizens who have other moral objections. The First Amendmentdoes not guarantee the free exercise of morality, even if the person having themoral scruples happens to be religious. Even if one’s moral view is informed byone’s theology, the moral stance is not itself religious. So I do not view theconstitutional question as properly arising in this case. Rather, I view it asa good old-fashioned political fight of partisans.

The salience of political ideology canbe seen even in how the various parts of the Catholic Church reacted to Obama’scompromise. According to the New York Times, the “leaders of several largeCatholic organizations that work directly on poverty, health care and educationreacted positively,” whereas the bishops continued to object—even arguing thatCatholics who own businesses should not be required to provide birth control totheir employees in their health insurance coverage. In other words, the personal moral view of a non-religiousbusiness owner should somehow exempt the business from the law that every otherbusiness in the U.S. must follow. Besides vastly over-extending the importance ofthe moral issue even withinCatholicism (effectively making it a single-issue religion), the argumentinvolves religion at best only tenuously next to business and constitutionallaw. Perhaps so many Catholics are unconsciously not following their bishopsbecause of a natural aversion to such unabashed over-reaching (i.e., greed).Again, this could well be the story within the story, with the bishops sointransigent because they sense they had already undercut their own credibilityfrom within. In other words, political ideological partisanship does not dowell as the basis of a religious role.

For example, Archbishop Dolan gave alecture on contraceptives at Fordham law school. At Fordham, birth control iscovered by the student health plan, though none of the medical practitioners atthe university clinic prescribe them; students must go to private clinics forprescriptions. During his lecture, Dolan criticized people who postponeconception with “chemicals and latex” as part of “the culture of death.” Is postponinga pregnancy synonymous with death? It is not as if a fertilized egg werekilled. Moreover, is delaying a biological process in the religious domain? If so, then virtually anything could beclassified as religious and the domain of religion become a meaninglesstautology. The transcendent aspect is nugatory because by Dolan’s own admissionthe topic is biological reproduction—which Augustine wrote of as being soworldly, and thus tainted by original sin, that the act itself is not even tobe enjoyed. Treating the worldly as definitive for religion risks making God inone’s own image, incurring pride as self-idolatry in the guise of piety. Thisis why most Catholics were not following their bishops on the issue.

Does Jesus even say anything about birthcontrol in the Gospels? The Catholic Church would doubtless point to themagisterium (i.e., its teaching authority), though the argument that a teachingon which Jesus is silent is nonetheless central (even binding) seems to be astretch. Dolan may have been kept unaware of these points, at least at Fordham,for the moderator screened the written questions that expressed or impliedanother opinion. As in a one-party state, Dolan got to hear what he wanted tohear; he could thus safely lecture as if he were preaching to the choir (whichwas actually doing the opposite—essentially voting with their conduct).

Bridgette Dunlap organizing an off-campus clinic for birth control at Fordham. Michael Nagle/NYT

The partisan (even totalitarian) ratherthan religious nature of Dolan’s talk and its topic is evident just from themoderator’s statement to the audience, “If I don’t ask your question, I eitherapologize or I don’t care.” I suspect that the latter is the attitude residing justbelow the surface when partisans of theopposing view when they attend Mass. In other words, the “I don’t care”alone sends the message that Catholicism is for socially-conservativeRepublicans only. The attitude reflects a rather extreme degree of partisanshipthat admits up front to not having any concern whatsoever about being unfair,or even civil, to those with whom one disagrees. If you expected a fair shot at getting your question read—you knowwhat—I really don’t care how you feel about being shut out. Thedismissiveness alone indicates a belief that the persons do not even deservecustomary politeness on account of their view. Such is the arrogance of I can’t be wrong. Raised to the level oftruth, such arrogant partisan zeal functions like a knife, even if it haughtilyclaims in still more passive aggression to be in the name of compassion. Thetruth, as it were, is in the partisan pudding. Essentially, what is beingworshipped is pride, which Augustine viewed as the chief sin of all.

I do not believe that religion wasmotivating the bishops in opposing Obama’s decisions. The New York Timesreports that to many Catholic leaders, the controversy sounds like “a replay ofthe fight over the healthcare overhaul passed in 2010.” Even though Catholicbishops had been advocating universal health care since 1919, the bishops in 2010“nearly blocked the passage of the health care bill” because they said it “didnot go far enough to ensure that federal money would not be used to pay forabortions.” At the very least, the bishops’ motive in early 2012 should havebeen questioned, as they had opposed the law itself. It sounds more like sourgrapes than anything religious.

Behind the “I can’t be wrong” may be anabstinent partisanship on the right that has a thinly veiled hatred ofprogressives. I suspect that the bishops had been working to remake their“universal” Church as a place for Republican Catholics to worship the God ofmoral issues. In other words, the bishops were blind to the dogmatism in thearbitrariness that is involved in limiting a religious practice to people of aparticular political ideology. Such arbitrariness is enforced by power andintimidation.

I can just imagine Dolan’s seethinghatred for Sister Anne Curtis, a leader of the Sisters of Mercy of theAmericas, who supported Obama’s compromise in line with making health careavailable to all. Similarly, Sister Carol Keehan, president of the CatholicHealth Association, also supported the compromise, saying “My special interestis that in 2014, the32 or so million people who do not now have healthinsurance will get access to health care.” Such compassion was notably missingfrom Dolan’s reaction to Obama’s compromise. I suspect he had little compassionfor the sisters either.

Meanwhile, Democrats could feel at homein Unitarian Universalism, which is perhaps even more ideologically partisan,but at least up front about it: “religion” there being about institutingspecific social structures that are deemed (by the Unitarians) to be moral.This “left-wing” partisanship can be seen in a letter sent by clergy on “theleft” (including a few Unitarian ministers) to the White House.

The following sentence from the letteris telling: “As clergy, we are committed to upholding the important goals ofreproductive justice and health, empowering women and men to make decisionsabout whether and when to have and bear children within their own moral andreligious tradition, and assuring them the means and ability to raise theirchildren in a safe and healthy environment. Access to reproductive healthservices recognizes a moral value embraced across the religious spectrum. Wethank you for your decision supporting the fundamental value of reproductivehealth to women and families.” The only reference to anything explicitlyreligious are “clergy” and “religious spectrum.” It is as if the authors werepolitical activists who just happened to be clergy.
I suppose what amazes me is that we inthe general society are so willing to ignore obvious instances in whichpartisan sticks its ugly head out to toss a lit match on a pool of gasolineunder the subterfuge of religion. Besides distending and contorting religionitself such that the rest of us would hardly recognize it if it hit us on thehead, the practice of partisan fighting under the subterfuge of religion giveswhat is actually a political faction undue stature and influence, not tomention airtime. Essentially, anger is anger. I suspect that for the bishops ithas become a habit.
Sources:

Louise Radnofsky, “Catholic LeadersBlast Rule on Contraception Coverage,” TheWall Street Journal, January 25, 2012. http://online.wsj.com/article/SB10001424052970204624204577181413393315258.html

Denise Grady, “Ruling on ContraceptionDraws Battle Lines at Catholic Colleges,” TheNew York Times, January 30, 2012. http://www.nytimes.com/2012/01/30/health/policy/law-fuels-contraception-controversy-on-catholic-campuses.html

Amanda Terkel, “President Obama’sPro-Choice Birth Control Decision Draws Praise From Religious Leaders,” TheHuffington Post, January 30, 2012. http://www.huffingtonpost.com/2012/01/30/obama-birth-control-religious_n_1242680.html

Laurie Goodstein, “Obama Shift onProviding Contraception Splits Critics,” TheNew York Times, February 15, 2012. http://www.nytimes.com/2012/02/15/us/obama-shift-on-contraception-splits-catholics.html

Reining in Corporate Pay: Europe as a Model of Fairness for America

2012-01-25T21:45:00.002-06:00

Corporate compensation—executive pay in particular—represents a “clear market failure,” so said Vince Cable, the business secretary in the E.U. state of Britain. While suspected, the sheer explicitness, or blatant manner, of this verdict is itself noteworthy. Moreover, it stands as an opportunity for the E.U. to surpass the U.S. on economic fairness, which is a type of justice (see John Rawls). That is to say, Europe had an opportunity at the time of Cable’s statement to set the E.U. on a trajectory that would make the unfairness in the American system more transparent.

The business secretary, a Liberal Democrat in a coalition government with the Conservative Party, told the British House of Commons in January 2012 that business and investors “recognize that there is a disconnect between top pay and company performance and that something must be done.” In New York at the time, the disconnect was generally taken as a fact of life, given the power of the managerial elite in corporate capitalism (as well as American legislatures). As if attempting to pop this stygian balloon filled with the noxious air of denial, Vince Cable continued, “We cannot continue to see chief executives’ pay rising at 13 percent a year while the performance of companies on the stock exchange languishes well behind . . . (a)nd we can’t accept top pay rising at five times the rate of average workers’ pay as it did [in 2010].” The unfairness, in other words, is at the expense of not just the corporation’s owners, but also the (other) employees—executives being employees too.

It could be argued that the 13% annual increases in executive pay are a function of an increasing proportion of company stock options in the compensation. If the profits are languishing, the theory goes, the value of the options should be zero (i.e., unexecuted). However, what if the next group of executives, or even the economy over all, “performs” such that the options held by the previous executives then become valuable? Moreover, what do options cost non-management stockholders in terms of dilution? I suspect that options are “an easy way out” relative to cash compensation. The question is thus whether the practice can be reined in.

Under Vincent Cable’s proposals, shareholder votes on executive pay would be binding. Seventy-five percent, rather than a mere majority, would be needed for approval. I have never understood why the American states limit such votes to “non-binding,” as if the business judgment rule trumps property rights on compensation. Given that CEOs typically control their boards, whose job it is to oversee the executives for the stockholders, treating the property owners of the corporate wealth as if they were a focus group or a meaningless straw poll in Iowa seems misguided at best—and supportive of an institutional conflict of interest centered on the executives. To be sure, the suggestion made by Chuka Umunna, Vincent Cable’s counterpart in the Labour Party, to have employees as part of executive compensation committees also incurs a conflict of interest—one centered on the employees who have an interest in wanting “payback” for the decades of unfair compensation. Conflicts of interest can work both ways—inflating and deflating deserved compensation.

My main point is the following: Were Europe to strengthen investors’ property rights—including disallowing proxies held by managements for such votes on account of the conflict of interest—the fault running through American political economies and civil societies would become more transparent (i.e., more obvious). “We have been clear that executive pay must always be fair and transparent, and that high pay must be for outstanding, not mediocre, performance,” John Criby of the Confederation of British Industry—a business lobby group—said. “Millions [of pounds] for mediocrity does a disservice to the reputations of hard-working businesses.” Indeed, it does a disservice to the society as a whole—particularly in terms of what it stands for. Can you imagine the U.S. Chamber of Commerce coming up with such a statement? It is a pity, particularly in terms of systemic risk, that a lack of enlightened self-interest in the vested interests on such a “clear market failure” exists in America. For this reason, “Europe as a Model” is not such a bad thing, certain rhetoric (of the usual suspects) to the contrary.

In Vermont and Wisconsin at the time of Vincent Cable’s speech in Britain, movements were underway to amend the respective constitutions (as well as that of the U.S.) to make it clear that corporations are not “legal persons.” I believe it would follow that money is not speech, though the amendments ought to make this explicit, given the tendency of justices to invent legal doctrines and the sway of money in legislative halls. Polls at the time showed 71% of the people across the United States were opposed to the Citizens United (unlimited corporate political contributions) decision of the U.S. Supreme Court two years before (almost to the day). Lest those movements get cocky, their leaders should be aware that huge corporate “war chests” used to buy politicians, commentators, and air time may mean that even such a supermajority’s popular will may not be sufficient. If so, it is unlikely that anything like Vincent Cable’s proposals would see the light of day in America. Accordingly, I have pointed out here the value in merely having an alternative displayed in Europe, even if the benefit is limited to wakening Americans up to the grip of corporate capitalism in American societies.

Source:

Julia Werdigier, “British Government Works to Rein in Corporate Pay,” The New York Times, January 23, 2012. http://dealbook.nytimes.com/2012/01/23/british-government-looks-to-rein-in-executive-pay/

The European Debt Crisis: Europe's Leaders in Pictures

2012-01-25T21:13:00.002-06:00

Can you identify the narrative in the video?

Free Speech in Europe: Criminalizing Denials of Genocides

2012-01-24T17:57:00.001-06:00

While the world continued to look on—likean impotent rich man who cannot afford Viagra—as a genocide was taking place inSyria (i.e., the systemic killing of a group—in this case, of pro-democracydemonstrators), France’s state senate approved a bill on January 23, 2012criminalizing the denial of officially recognized genocides, which according tothe state includes the Nazi Holocaust and the Turkish killing of Armeniansbeginning in 1915. In the twenty-first century, fining people and putting themin prison for not wanting to remember things so horrible evinces the same kindof nationalist thinking that had led the twentieth to be the bloodiest century.In contradistinction to that decadent century, turning a new leaf following theArab spring in the twenty-first is a far better strategy.

Beyond the obvious matter of freespeech, which admittedly is not absolute even in America, it should be askedwhether law is an efficacious means of barring or changing thoughts. On the dayof the vote, a study was released at the Bundestagin Berlin reporting that twenty percent of that state’s population wasstill anti-sematic. I don’t believe penalizing that prejudice itself (i.e., asa belief apart from any conduct) by the state’s police power forces any changeat that level. At most, people would simply hide it—and how would suchrepression burst out in conduct? I submit it would be better simply to ignorethe thoughts and concentrate on conduct.

Europe has had a tendency to codifythoughts as if they belong to the state. In America, that realm is province ofthe “thought police” that sprang up (as self-appointed) during the 1990s as“political correctness.” At least with politicalcorrectness (such as in saying humankind rather than mankind, and NativeAmerican rather than American Indian), the self-appointed enforcer can be toldto go to hell. The natural reaction to being accosted in such a presumptuousand pernicious way is to say precisely that which is not desired by theaggressor. Adding the police power of the state to enforce certain beliefs bypenalizing others is dangerous not only for society itself, but also forindividuals in terms of our quality of life free from anxiety. The over-reachingmay even be immoral; it is certainly weakness.

A person may be able to control one’sown conduct more than one’s ideas or beliefs. Besides the futility of law ingoing after a person’s interior mental life, that domain is inherently beyondthe unwanted control of another person. The French law would include up to ayear in prison and a fine of about $58,000 for anyone who denies anofficially-recognized genocide. Is the reach of the law limited to publicspeeches or published writings, or are people of France to feel anxious atprivate parties in their own home? In terms of general anxiety, the law couldcost the state’s entire population. Is effectively adding the Turkish killingsnearly a century before to the German Holocaust worth this in France? It is notas if that E.U. state borders Turkey.

Therefore, behind the 127 to 86 vote isa rather basic category mistake with respect to jurisprudence. Taking the lawbeyond its native domain to enforce one’s agenda using the police power of thestate undercuts law itself, and thus contributes to the downfall of itslegitimacy, even in its proper realm. In other words, in over-reaching, agovernment can wind up with even less influence over its people through evencriminal law.

Additionally, a refusal to respectanother’s inalienable right to have certain ideas or beliefs is to treat therational nature (i.e., thoughts or beliefs) itself as merely a means to one’sown designs, rather than as an end in itself. According to Kant, this isimmoral because of the value that is rightfully in reason because it is theassigner of value and thus has absolute value. Treating that which hasessentially undefined value (as the source thereof) as having value only in sofar as it fits with one’s own ideas or beliefs is wrong.

Might it be, Nietzsche would surely add,that modern moralizers are immoralrather than what we take ourselves to be? Who are the aggressors—les esprits méchants et perniceux? Mightit be that human beings are far too presumptuous in what we think we know toventure into any other man’s head with impunity? Am I understood? This medicineis not meant for the weak, Nietzsche warns, who nonetheless have anuncontrollable urge to dominate. These new birds of prey are not entitled to dominate,and yet they somehow convince the strong—through thou shalt not—to be ashamed of those thoughts come out of theirinnate, self-confident strength. Beashamed of who you are. The strong self-overcome their most willfulinstincts in order to experience the pleasure of power that naturally goes withtheir strength. The weak who seek to dominate, on the other hand, are driven bytheir instinct to overcome the resistance of others by passive aggression (owing to the weakness of theinstinct, which they can’t seem to resist anyway) and cruelty (includinggenocides). Hitler was weak, but so too is the presumption to punishothers for their beliefs in retaliation. Birds of a feather, these newbirds of prey most certainly are. It is amazing they can even fly.

“By aiming at more [in pride],”Augustine proclaims in City of God (bk14, ch.13), “a man is diminished.” Pride, by the way, is not self-confidentstrength, for self-overcoming is blocked by self-idolatry. Perhaps expressingthe belief in over-reaching, which isan idea of the immoral and weak, should itself be punishable by a year in prison.This would probably only strengthen thebelief, which in turn would weaken the believer even as he or she presumes tobe more moral as a self-denying martyr. Lest the advocates of victims becomeourselves victimizers (e.g., the Crusaders), it is a good policy for a generalpopulation to keep an eye on us too, for we can get quite carried away as moralzealots without realizing how we are affecting others (i.e., rational nature ofothers). That there have been (and will be) victims of horrible things in theworld, does not give anyone the right to punish others for their thoughts or beliefs,for such intangibles are our inner castles, not to be treated like sand bypushy waves.

Fortunately, good sense prevailed and theFrench Constitutional Council struck down the law that would have criminalizedthe denial of the Armenian genocide by the Ottoman Turks. “We consider theannulment of the legislation by the Constitutional Council as a step thatcomplies with the principles of freedom of expression and research, the rule oflaw and international law in France,” the Turkish Foreign Ministry said afterthe Council’s decision. This statement is ironic, given that the accession ofTurkey into the E.U. had been held up in part out of concern in Europe thatTurkey was not yet sufficiently ensconced in Western values. Perhaps it shouldhave been asked whether France should be a state of the E.U.

Sources:

Scott Sayare and Sebnem Arsu, “GenocideBill Angers Turks as It Passes in France,” TheNew York Times, January 23, 2012. http://www.nytimes.com/2012/01/24/world/europe/french-senate-passes-genocide-bill-angering-turks.html

Scott Sayare, “French Council StrikesDown Bill on Armenian Genocide Denial,” TheNew York Times, February 29, 2012. http://www.nytimes.com/2012/02/29/world/europe/french-bill-on-armenian-genocide-is-struck-down.html

Extrapolating from the Arab Spring to CSR

2012-01-23T13:20:00.000-06:00

Richard Branson, founder of Virgin Atlantic and a myriad of other companies, sees a natural extension or follow-through from the pro-democracy protests in the Middle East and North Africa to more corporate social responsibility. As much as I would like to think that the twenty-first century proffers a new world, I think we have to acknowledge the weight of the political, economic and social strictures that we have uncritically inherited.

According to USA Today, “Branson says it took him seven years to realize businesses are part of the problem as they focus narrowly on profit and exhaust natural resources. Now, he believes the world has changed in the last several months, with revolutions in the Middle East, the earthquake and tsunami in Japan, riots in London, famine in East Africa, and debt crises around the world. He quotes the band REM: "It's the end of the world as we know it … and I feel fine." Seven years? Branson has been thinking on all cylinders. Even if businesses are not part of the problem, the default of business is to make profit by turning resources into products to be consumed. This is the raison d’etre (i.e., the reason for being) of the modern corporation. Viewing its inherent function, as per its design, as part of “the problem” may simply be due to the sheer magnitude of a large corporation’s operations. In other words, a large foot is apt to leave a large footprint.

Moreover, changes in government, protests, natural disasters and a systemic overreliance on debt-financing by governments do not necessarily mean the end of the world as we know it. I wish this were so, but people in power have a nasty habit of retaining it, even if under subterfuges if necessary. For example, the military rule in Egypt at least as of the beginning of 2012 may put the “revolution” in 2011 in perspective. That is to say, the old guys are still in charge, so how much of a revolution was it? Furthermore, it would be naïve to believe that the corrupt relationship between business and government in Japan has been expunged by the post-tsunami clean-up. It is doubtful, for example, that TEPCO has been born-again as if baptised by the tsunami.

The larger point Branson is making in his statement is that corporations will no longer be part of the problem because the world as we know it is no more. He cites several instances of corporate social responsibility to make his point. However, the business of business is still to make money, and much of CSR is still essentially marketing writ large. Without changing the design in corporate law, it is foolhardy to believe in a brave new world of corporate capitalism. It is at the very least a stretch to assume that pro-democracy protests or changes in government will somehow convince business executives to engage in CSR. Even in terms of corporate or “stakeholder” democracy, the linkage is tenuous because the expectation that governments should be democratic does not extend to corporations because the two are typically viewed as different domains. So to Branson, I would say, nice job with your companies and even on CSR, but let’s not get carried away on some jet to nirvana. As much as we would like to see the world remade rather than carrying on with baggage from the twentieth-century, we would get further toward this goal by keeping our legs on the ground.

Source:

Kathryn Caravan, “Branson’s ‘Screw Business As Usual’ Has High Points,” USA Today, January 23, 2012. http://www.usatoday.com/money/books/reviews/story/2012-01-22/richard-branson-screw-business-as-usual-book/52745386/1

Credit Downgrades in the E.U.: Blaming the Messenger?

2012-01-22T17:38:00.001-06:00

On January 13, 2012, “S&P stripped France and Austria of their prized triple-A credit ratings and reduced the ratings of seven other [states in the euro-zone], including Italy, Spain and Portugal. Germany, Finland, the Netherlands and Luxembourg were spared, along with Belgium, Estonia and Ireland,” according to the Wall Street Journal. Italy was downgraded from single-A to triple-B-plus. "We think there are elements missing in their analysis … when it comes to the growth strategy … there is no space for maneuver for fiscal impetus but we believe that a growth strategy will have to rely mainly on structural reforms," Olivier Bailly, an E.U. Government spokesman, told reporters. The Journal also reports, “Bailly also called the timing of the S&P decisions ‘very odd’ citing fiscal policies adopted to weather the crisis in the downgraded countries as well as the two successful debt auctions in Spain and Italy last week. ‘We think that there is a strange timing in this announcement considering the signals from the markets,’ Mr. Bailly said.” The “very odd” and “strange timing” reference a tacit political motive behind S&P, which the European officials point out is an American company.

The Finance Minister from the state of Germany, Wolfgang Schäuble, “sharpened his tone” toward credit-rating firms in the wake of Standard & Poor's sweeping euro-zone downgrade, questioning its rationale and impartiality and predicting a fresh political offensive to reduce their clout. The Wall Street Journal continues, “Schäuble suggested the downgrade was motivated by political and business interests, accusing the agencies of competing for attention. S&P expressed reservations about the predictability and effectiveness of European political efforts to contain the region's chronic debt crisis.” In short, he claimed that the American rating agency wasn’t giving Europe enough credit. "We know that there is uncertainty about the euro zone," he said. "I don't think that S&P really has understood what we have already accomplished in Europe."

Similarly, the incoming President of the European Parliament—an office roughly equivalent to the Speaker of the House in the American Congress—railed against the credit agency in his opening speech. Even though this strategy earned him some easy political capital in Europe, it could ultimately undercut his credibility. Moreover, political biases may have been a part of the European reaction rather than S&P’s credit downgrade of some E.U. states (as well as lowering the rating of the E.U.’s bailout facility a notch to AA).

On January 16^th, the Wall Street Journal reported that French leaders “assailed the S&P” for focusing on France and letting the U.K., which retained a top rating even though its deficit was one of the highest in Europe at the time, off the hook. Questioned about that, Moritz Kraemer, an S&P managing director in Europe, “cited as factors in the U.K.'s favor its independent central bank and the government's ambitious deficit reduction plan.” Rather than S&P having been motivated by politics, the assailing could be a case of European sibling rivalry, or jealousy, obscuring the Europeans’ own perception of S&P’s downgrades. Indeed, the “facts on the ground” in Europe were not so bright that S&P could realistically be accused of being out of touch or politically motivated.

For example, on the same day as the Journal’s article, the New York Times reported that reforms were “flagging” in Greece amid unproductive negotiations between Greece and its creditors. Indeed, talks had broken off two days before S&P’s action. The E.U. and Greece were pushing for private bond-holders to take a 50% loss in exchanging their bonds and agree to a lower interest rate (3-4%). Greece had the option of forcing the terms by subjecting the existing bonds to collective bargaining, while bond-holders, including hedge funds, could sue Greece based on sanctity of contract, and, if unsuccessful, even take the case to the European Court of Human Rights—property rights being considered a human right in the Europe. However, were such a right to apply to the speculators who bought Greek bonds at 40% of their value, the application of right could be questioned by a court. Moreover, if such bondholders were exploiting Greece’s financial bind for a quick profit, it stands to reason that the European people and their representatives would have little sympathy for the rights of Greek bond-holders. Do the property rights of private parties dwarf measures by a government to forestall default on semi-sovereign debt (Greece being semi-sovereign as an E.U. state)? Were the bondholders unaware of Greece’s fiscal condition when they purchased the bonds? It seems to me that the public good as represented by the government (both of the E.U. and Greece) trumps private financial interests when the currency, financial system, and economy hang in the balance.

After collapsing, the talks did resume in hopes of avoiding “the sort of uncontrolled default that many experts fear could threaten the global financial system.” The negotiators were not out of the woods by any means, for the talks soon stalled again. According to the New York Times, if Athens cannot “secure concessions from the bondholders or the bailout money it needs,” (E.U. leaders were saying the next payment of 30 billion euros was contingent on an agreement), “Greece could default by March 20, when 14.5 billion euros in debt comes due and must be repaid.” With this as a rather pressing risk, plus the projection that even if the private bondholders were to agree to Greece’s terms, the state’s debt as a percent of its GDP would still stand at 120% rather than 140% in 2020, S&P may actually have been overly optimistic on its downgrades in Europe. The uncertainty alone could be expected to destabilize the state as well as the entire E.U. financially.

A week or so after one senior executive of Goldman Sachs in London dismissed the prospect of Greece dropping the euro, Ken Rogoff of Harvard and the IMF said it would be “unwise and preposterous” to think that “no one would drop out of the euro, or that the euro’s troubles are over.” The New York Times adds that with “Greece on the brink of a default, a number of business leaders, economists and policy makers predicted that a breakup of the euro zone was still in the cards, beginning with the exit of Greece and possibly moving toward other weak [states] like Portugal.” George Soros “even said that Greece might well be pushed out of the euro zone [in 2012].” The diametrical opposition of the two views expressed in the New York Times on January 26^thmust have been worrying to investors well beyond those who held Greek bonds. Back on January 17, 2012, the paper had reported that the “specter of a disorderly default, rather than the voluntary losses [that were] being negotiated [at the time], unnerved stock markets around the world [the previous fall] and could prompt renewed selling [during the negotiations].” The chance that Greece could actually default and set in motion a chain reaction would surely have magnified the impact of the divergence of opinion on the matter. How could S&P be expected to ignore the risk in all this?

Claiming instead that business leaders were not recognizing the progress in Europe (particularly in Ireland and Spain, according to Angela Merkel of the state of Germany), European officials in general sought to reduce the market’s reliance on decisions made by rating firms altogether. "We want to 'downgrade' the reliance of EU financial institutions on credit agencies," Bailly said, adding that "the general aim here is to not depend on credit-ratings agencies' analysis and if we had that, we would have had a different reaction [to the downgrades] from financial institutions on Friday [January 13^th]." The problem is, the reaction could have been worse. Creating a non-profit European rating agency would not alter this, unless such an organization, unlike S&P, were subject to political pressures. The officials’ protests notwithstanding, perhaps such a rating agency is precisely what the European “leaders” wanted.

Even in speculating on Van Rompuy’s stated objective that the E.U.’s enforcement mechanism on state deficit and debt limits would be approved in a few months and operational in six, one could easily waiver in having faith in the venture, even from Van Rompuy’s description of the strengthening of enforcement as a “fiscal compact.” He might as well have admitted that it had the force of a straw man in the midst of a Kansas storm. Schäuble didn’t exactly encourage confidence by saying that the E.U. was not even political. Private capital tends to run for the hills in the face of such denial. Therefore, the salience of the rating agencies was not Europe’s problem at the time. Rather than trying to discredit the messenger of credit, E.U. and state officials would have been wiser in concentrating on the threats to “ever closer union”—namely, themselves.

Sources:

Christopher Emsden, Matina Stevis, and Bernd Radowitz, “E.U. Leaders Focus on ‘Progress’,” The Wall Street Journal, January 16, 2012. http://online.wsj.com/article/SB10001424052970204468004577164420401608382.html

Rachel Donadio and Niki Kitsantonis, “As Reforms Flag in Greece, Europe Aims to Limit Damage,” The New York Times, January 16, 2012. http://www.nytimes.com/2012/01/16/world/europe/europe-now-doubts-that-greece-can-embrace-reform.html

Nelson Schwartz, “Euro Woes Could Revive Bout of Market Volatility,” The New York Times, January 17, 2012. http://www.nytimes.com/2012/01/17/business/global/euro-woes-could-revive-bout-of-market-volatility.html

Landon Thomas, “Hedge Funds May Sue Greece If It Tries to Force Loss,” The New York Times, January 19, 2012. http://www.nytimes.com/2012/01/19/business/global/hedge-funds-may-sue-greece-if-it-tries-to-force-loss.html

Jack Ewing and Liz Alderman, “German Chancellor, Citing Europe’s Progress, Asks for Patience,” The New York Times, January 26, 2012. http://www.nytimes.com/2012/01/26/business/global/merkel-pleads-for-patience-to-let-europe-solve-its-problems.html