“Well written and an interesting perspective.” Clan Rossi --- “Your article is too good about Japanese business pushing nuclear power.” Consulting Group --- “Thank you for the article. It was quite useful for me to wrap up things quickly and effectively.” Taylor Johnson, Credit Union Lobby Management --- “Great information! I love your blog! You always post interesting things!” Jonathan N.

Friday, April 27, 2012

Obama Caving to Agribusiness

Faced with political pressure from Republicans and farming groups, the White House decided in April 2012 not to go ahead with rules that would have prevented children from “operating heavy machinery, handling tobacco crops, working in grain silos or performing other jobs considered potentially dangerous.” The Labor Department issued a statement indicating it was withdrawing the rules due to concern from the public over how they could affect family farms. “The Obama administration is firmly committed to promoting family farmers and respecting the rural way of life, especially the role that parents and other family members play in passing those traditions down through the generations,” the department announced. I contend that this rationale was a ruse intended to cover up the true source of the political pressure. Family farms were actually exempted from the proposed rules.

The Huffington Post reported that “(a)lthough family farms were actually exempted from the proposed rules, many opponents cast them as an assault on family farms and rural traditions, saying the White House wanted to keep children from doing even small chores. In fact, the rules would only have affected minors who were formally employed and on farm payrolls.” To get at why Republicans would have stressed the family farm ruse, it is necessary to go to the funding—for motivation tends to follow it.

From 1996 through at least 2012, agribusiness has given much more to Republicans than to Democrats. The disproportionate giving gave Republican lawmakers a financial (and political) incentive to protect agricultural corporations from regulations they do not want. Because the family farm has a much better reputation in society, it makes political sense that Republicans (and even the farm groups) would claim to be protecting the family farm when the real intent is to keep agribusiness free of unwanted regulations. What is surprising is not the subterfuge; rather, the surprise lies with the Democrat in the White House who caved into the agribusiness interest in spite of where that sector was directing its political contributions. Given the political maxim that perception can become reality, it is likely that the family farm subterfuge worked and Obama felt he had to acquiesce to it or be viewed as against the rural family in the midst of his re-election campaign.

See Related Essay: “Oil and Gas Companies: Citizens Buying Government


Dave Jamieson, “Child Labor Farm Rules Scrapped by White House under Political Pressure,” The Huffington Post, April 27, 2012.

Dan Froomkin, “Corporate Campaign Contributions Show Some Industries Giving Up Appearance of Bipartisanship,” The Huffington Post, April 26, 2012. 

Hollywood Bribes China

The Foreign Corrupt Practices Act, known as F.C.P.A., “forbids American companies from making illegal payments to government officials or others to ease the way for operations in foreign countries,” according to the New York Times. The practical difficulty facing American companies doing business around the world is that in some cultures bribes are so ubiquitous they are simply a part of doing business.  For American companies to refuse to participate in what is generally expected can be a competitive disadvantage, particularly if substitutes exist and the practice is widespread.

The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacity, available in print and as an ebook at Amazon.

Thursday, April 26, 2012

Oil and Gas Companies: Citizens Buying Government

According to the Huffington Post, “corporate campaign contributions have historically been split among incumbents of both political parties, with a decided advantage for whichever controls Congress and the White House.” From 2008 to 2012, however, “companies in some major industries that [saw] a threat from federal regulations—most notably the energy sector—[appeared] to have deepened bonds with the Republican Party, with which they share increasingly indistinguishable goals.” One implication is that the party would block regulations to protect the regulated even at the expense of the public safety.

For example, the disproportionate donations by the oil and gas industry to the Republican Party could explain why Republicans in Congress argued for deregulation of deepwater oil drilling even in the wake of the BP Deepwater Horizon explosion and oil leak in the Gulf of Mexico. Financial contributions can explain why the obvious reaction for greater regulation was ignored by those members of Congress. In other words, financial incentive can create blindspots or lapses that are seemingly inexplicable.

Besides the compromised public safety, the financial largess of an industry going predominantly to one party can distort the political “playing board” such that the competition between parties (and between incumbents and challengers) is compromised or distorted. In other words, baleful effects on democracy itself may be part of the mix.

Lastly, the “right” of companies to make political contributions, as if they were “corporate citizens,” can be challenged on the basis that a company is an association rather than a citizen. Lloyd Avram, a spokesman for Chevron, claimed in a written statement that "Chevron exercises its fundamental right and responsibility to participate in the political process. We make political contributions where permitted by law and, consistent with Company policy, to support political candidates, political organizations and ballot measures committed to economic development, free enterprise and good government." Rather than being a fundamental right and responsibility for a company to participate in the political process, it may be an overreach.

On one level, the “fundamental right and responsibility” evinces anthropomorphism: the projecting of human qualities onto non-human entities. Humans exercise their rights of citizenship. It does not necessarily follow that what holds for human beings also applies to our associations themselves. Even though a company consists of people, the entity itself is an organization with its distinct interests. It is not necessarily so that those interests have the rights and responsibilities enjoyed by citizens. To the extent that the interests between a company and its members do not diverge, the citizens in the company have a multiplied influence that other citizens do not have. The principle of fairness is thus relevant too.

In short, giving corporations the fundamental rights and responsibilities of (human) citizens opens the political system up to significant risks. In being able to buy a political party thereby made hegemonic, large concentrations of private capital can effectively protect their interests in staving off regulation at the expense of the public interest. In effect, one faction is able to buy a government. Beyond the conflict of interest in having the regulated be in a position to use its public agents to obviate unwanted regulation and the democracy deficit in the polity as a whole, the attribution of the rights and responsibilities of citizenship on companies evinces a fallacy or category mistake caused, most likely, by the usual suspect of corporate political contributions. Unlike corporations, (human) citizens don't buy themselves citizenship. The concept naturally applies to human beings rather than to our associations. That we have freedom of association does not somehow turn our associations into citizens themselves.


Dan Froomkin, “Corporate Campaign Contributions Show Some Industries Giving Up Appearance of Bipartisanship,” The Huffington Post, April 26, 2012. 

Growth Union

In relying only on austerity and cheap bailout loans, the German-led strategy has proffered a false sense of European integration in the E.U. Even as expanding the bailout funds to roughly 800 billion euros and strengthening the E.U.’s means of enforcing limits on state deficits and debt are along the line of continued incremental shifts of governmental sovereignty from the state governments to that of the E.U., the related austerity (and recession) sparked a populist backlash in several states. At the state level (and this level has a major role at the E.U. level—unlike in the U.S.), the state-rights (i.e., anti-E.U.) parties have been the beneficiaries even if they could not gain outright majorities. The National Front in the state of France is an obvious example, as it captured 18% of the vote in the run up to the general election for the governor there.  Other things equal, such a spike translates into brakes on further European integration in the medium term.

                Different takes on the E.U. and austerity: Sarkozy, Hollande, and Le Pen of France    NYT

The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Wednesday, April 25, 2012

Citigroup: Spanked by Stockholders

In April 2012, Citigroup’s shareholders voted against the bank’s proposed $15 million compensation for the CEO, Vikram Pandit. This was the first time a majority on a stockholder vote—in this case, 55 percent—united in opposition to what the New York Times calls “outsized compensation at a financial giant.” Shortly thereafter, a major stockholder sued Citigroup for breach of fiduciary duty (owed to the stockholders) for excessive executive compensation. Nevertheless, the prognosis is not so bad for the “top brass” on Wall Street; they need not worry unless the votes were to become binding and managements were barred from voting proxies.

For one thing, the vote, taken as required by the Dodd Frank Financial Reform Act of 2010, was non-binding. “After the vote, Richard D. Parsons, who is retiring as Citigroup chairman, said that he takes the vote seriously and Citi's board will carefully consider it.” It is odd, to say the least, that the agents of the owners would just “carefully consider” a majority vote of stockholders. Anything less than binding contradicts principal-agent theory. Lest it be argued that the business judgment rule ought to trump property rights, the question of the total compensation for the “top five” positions at the bank does not hinge on technical expertise in management. Moreover, it could be argued that in a economic system based on private property, that the property rights trump even the expertise of hired managers.

Secondly, the problem for stockholders voting no may have had more to do with the relationship to performance than that the pay level itself was too high. “The company has been flatlining,” said Mike McCauley, a senior officer at the Florida State Board of Administration, which voted its 6.4 million shares against the plan. “The plan put forth reveals a disconnect between pay and performance,” he continued. Calpers, the California state pension fund, also voted against the plan. The issue for Calpers “was whether pay was linked to performance and whether those targets were spelled out and sustainable over the long term,” said Anne Simpson, director of corporate governance for Calpers, which owns 9.7 million Citigroup shares. “Citi was found wanting on both,” she said. “If you reward them for focusing on high-risk, short-term profits, that's what you get, and that's how the financial crisis caught fire.” In other words, the issue was not necessarily excessive pay on Wall Street; rather, the perceived culprit was a reckless design of compensation incentives resulting in excessive risk.

Therefore, I do not agree with the New York Times, which relates the negative vote at Citigroup to the wealth-inequality protests in the Occupy Wall Street movement. That American CEOs continued to make far more proportionately than workers than was the case in Europe was besides the point. The majority of Citigroup’s shareholders were trying to make sure that Citigroup would not go the way of Bear Stearns and Lehman Brothers.


Jessica Greenberg and Nelson Schwartz, “Shareholders in Citigroup Reject Executive Pay Plan,” The New York Times, April 18, 2012.

Tuesday, April 24, 2012

Obama on Executive Power

In February 2011, President Barak Obama directed the Justice Department to stop defending the Defense of Marriage Act, which bars federal recognition of gay marriages, against constitutional challenges. “Previously, the administration had urged lawmakers to repeal it, but had defended their right to enact it. In the following months, the administration increased efforts to curb greenhouse gas emissions through environmental regulations, gave states waivers from federal mandates if they agreed to education overhauls, and refocused deportation policy in a way that in effect granted relief to some illegal immigrants brought to the country as children. Each step substituted for a faltered legislative proposal.”

While not defying Congressional statutes, the use of executive power to thwart defending a statute violates the enforcement function of the executive branch. The other matters—enacting environmental regulations, granting relief to some illegal immigrants, and issuing state waivers presumably were under broader statutes that permit administrative action by the executive branch. The danger, however, is that the enforcement branch or arm could become a legislative branch or arm of the U.S. Government.

The irony is that Barak Obama had criticized George W. Bush’s use of signing statements. The New York Times points out that the institutional incentives of the presidency had come to affect even Obama. This is an extremely significant point, for it suggests that “elections have consequences” is buffered by the institutional trappings of the particular office.

For example, as the E.U. was struggling to manage the debt of some large states by pressing for austerity budget cuts at the state level, it was feared that state office-holders would be elected who had promised to leave the euro and reject the austerity. From the example of Obama on executive power, we can say that such fear was over-stated.  A Euroskeptic once in office is subject to pressure from other states as well as from E.U. officials. The consequent backtracking is typically viewed as political fear. I contend that it is merely a natural reaction to the incentives of a given office and institutional placement (i.e., as a state in the E.U.).

Rather than being hypocrites,  office-holders who said one thing on the campaign trail but then modified their position once in office can be said to be shifting from campaigning to governing—the latter being subject to the institutional incentives of the office. The breadth of campaign proposals is almost necessarily to be wider than the actual conduct of office-holders because the “mandates” of an office have a converging effect because the office itself does not change.

Obama could have campaigned as an anti-executive candidate, but once he was sworn in he became an executive and thus had to function as one. His anti-executive campaign promises would translate at best on the margins of his governing decisions.  Hence, “real change” on the campaign trail is one thing, but change by office-holders is notoriously incremental by nature of the continuance of the respective offices. In other words, the status quo is the clear favorite where a government of offices has already been established. For “real change,” governmental change must also be included, and that cannot come from extant offices.

Generally speaking, what we take as change—what we expect in this regard from our elected office-holders—is only a very moderated sense of change. Put another way, we expect too much out of existing offices. If we want “real change” in terms of policy, we must also look at structural change of the government.


Charlie Savage, “Shift onExecutive Power Lets Obama Bypass Rivals,” The New York Times, April 22, 2012.