Perennial Lobbying Scandal
Lee Drutman
February 28, 2007
Lee Drutman is the co-author of The People's Business: Controlling Corporations and Restoring Democracy .
Last week it was reported that the U.S. Chamber of Commerce had spent $72.7 million on lobbying in 2006, setting a new American record, previously held by ... the U.S. Chamber of Commerce: $53.4 million in 2004. It is a remarkable amount of money, and so it's worth asking: How exactly does a group manage to spend so much money on the political process? And should we care?
This little factoid was not major news. Sadly, there is little “new” about business groups spending ridiculous amounts of money to try to influence public policy. When the Center for Responsive Politics totaled up all lobbying expenditures from 1998 to 2004, of the top 100 groups (all of whom spent at least $19 million), 60 were corporations and 32 were business trade groups (like the Chamber of Commerce). That means 92 percent of the most active groups were businesses or business trade groups. The Chamber topped the list at $204 million, followed by Altria at $101 million and General Electric at $94 million.
The Chamber’s record-breaking expenditures are also not news because there is nothing outwardly scandalous about them, in the way that, say, Jack Abramoff’s delightful dealings were outwardly scandalous. I suspect that most of the Chamber's lobbying is decidedly uninteresting and above-board—lots of meetings, mostly in the greater Capitol Hill area, full of long-winded arguments about why proposed or existing regulations are bad for economic growth.
But this dull fact doesn't neatly fit the picture of that “culture of corruption” that the Democrats keep promising to end. One looks in vain for the outlandishly inappropriate gifts and meals and tickets and trips that are said to buy influence. Though I don’t know for sure, I strongly suspect that large organizations like the Chamber of Commerce (or General Electric, or Boeing, or the Edison Electric Institute or any of the other business groups that spend tens of millions a year on professional lobbying) are not basing their lobbying strategy primarily on steak dinners and choice seats at a Wizards game. (If this were all it took, the Chamber would certainly have to spend a lot less).
Which is not to say that there aren’t plenty of such lavish lawmaker-lobbyist goings-on around the greater District of Columbia area, each with its own distinct whiff of impropriety. But the relentless focus on highlighting these goings—on (pick up a copy of The Washington Post or listen to a Democratic speech on the subject) offers a very misleading picture of lobbying.
If only it were that glamorous, the actual lobbyist must think! Lobbying is a shoe-leather business and it involves more than just the luxury box. To be effective, it takes relentless focus on the arduous and complex process by which a bill becomes a law (drafting it, attending hearing after hearing, then the subcommittee vote, the committee vote, the floor vote, the conference committee and so on). And then after all that, the endless attention to the process by which a law becomes an agency rule (public comment after public comment) and then to a never-ending litigation strategy once the rule is in place. And so on and so on, over and over again. Start participating at every level (and shaping public opinion, where necessary) and the lobbying expenditures do start to add up.
Only those with millions to spend can fight full strength at every stage of the process. Or even better, credibly threaten to fight full strength at every stage, in order not to actually have to.
Consider the prescription drug reform the Democrats promised during campaign season. By mid-January, when the bill was ready, Democratic leaders had backtracked. They had left intact the ban on Canadian drug imports, the ban on price caps and the requirement that private insurance plans remain small and numerous (and hence handicapped in their ability to negotiate bulk discounts).
Did pharmaceutical companies make their case with meals and tickets and trips? Or did they use more “appropriate,” though more costly, means, like hiring hordes of former Democratic staffers to make convincing arguments on why all those reforms would, in fact, be counterproductive, and by just generally being annoyingly persistent? They were successful, at least in part, because pharmaceutical lobbyists could promise to fight the Democrats every step of the way—a credible threat, given their resources. The pharmaceutical and health products industry spent $612 million to lobby between 1998 and 2004, more than any other industry. While such reforms might be popular generally, there was no organized group to push Democrats with nearly as many resources.
The fact that the Chamber of Commerce could and did spend $72.7 million on lobbying last year ought to give us far more pause than any of these periodic scandals of improper trips or exploited loopholes that keep popping up in our newspapers. Yes, these scandals are outrageous, and obviously worth noting and exposing. But the real outrage is the broad range of progressive policies that are simply off the agenda because to go against all that money is widely viewed as political suicide. In addition, a broad range of business-friendly policies are on the agenda because all that business money has worked tirelessly to place them there.
Sure, Congress could and should put all the limits it wants on gifts and travel (though by all indications, loopholes abound in all the latest plans and probably always will). Sure, more disclosure about lobbying is great (though not particularly useful, given that citizens don’t really get meaningful choices between candidates who listen to a lot of lobbyists and those who don’t). But it’s also time to look at the fundamental imbalances in the world of lobbying, and at who can afford to spend $72.7 million to influence public policy and who can’t. And why that matters far, far more than a single golf outing to Scotland.
http://www.tompaine.com/articles/2007/02/28/perennial_lobbying_scandal.php
Wednesday, February 28, 2007
Friday, January 19, 2007
Adam Smith -- yuks included, LA Times Book Review
http://www.calendarlive.com/books/reviews/cl-et-book19jan19,0,7457278.story?coll=cl-books-reviews
BOOK REVIEW
Adam Smith -- yuks included
On the Wealth of Nations Books That Changed the World P.J. O'Rourke Atlantic Monthly Press: 256 pp., $21.95
By Lee Drutman
Special to The Times
January 19, 2007
ADAM SMITH is an Enlightenment-era moral philosopher best known for writing "The Wealth of Nations," a founding text of modern economics that checks in at more than 900 dense pages — enough to discourage many a would-be reader.
P.J. O'Rourke is an impudent political satirist with a penchant for quippy one-liners, best known for such books as "Parliament of Whores" and "Give War a Chance." He is also the choice of the editors at Atlantic Monthly Press to be Smith's explicator for a mass audience as part of the publisher's "Books That Changed the World" series. (The jacket headline: "P.J. O'Rourke reads Adam Smith so you don't have to.")
It's not the best of matches. For one, O'Rourke is overly fond of Smith ("Even when he was wrong he was smarter than other people."), which makes him a satirist with nothing really to satirize. Hence there are fewer snappy one-liners than usual, and his jokes often feel forced: "Then there is the matter of those goods and services — Adam Smith's gross domestic product. I am as grossly domestic as anyone. Where's the product?" Hah, hah, hah.
The bigger problem is that O'Rourke is at best an amateur economist — a point he is surprisingly happy to make several times (ah, self-deprecating wit). But he is a Mencken research fellow at the über-libertarian Cato Institute, where he appears to have imbibed a very particular, morality-play view (markets = good; politicians = bad) of Smith's much more complicated and nuanced magnum opus. "Free markets lead to thinking," O'Rourke writes, "that eternal enemy of politicians."
Unfortunately for those hoping to acquire a reasonable understanding of Smith, O'Rourke is either unwilling or unable to probe "The Wealth of Nations" for anything more than a series of Cato-approved talking points to the effect that unfettered commerce rules, governments drool.
Nowhere, for example, does O'Rourke really probe the workings of crucial Smith concepts such as comparative advantage, the division of labor or the nature of competition. Nor does he explore Smith's controversial characterization of human nature as innately predisposed to "truck, barter, and exchange." And though he touches on Smith's conclusions about man being much disposed to sympathy for his fellow man, he does not explore how Smith's praise of self-interest is fundamentally circumscribed by this assumption — that the market is perfectly self-regulating only if you believe that people won't cheat each other if they have the chance. Also missing: Smith's disregard for joint-stock corporations, which he criticized for their greed, irresponsibility and generally anti-competitive nature.
Instead, O'Rourke's approach is to plod through the five books of "The Wealth of Nations" in order, telling us that Smith said this, Smith said that, furnishing direct quote after direct quote, cherry-picking his way to a series of pro-market policy prescriptions that today's leaders ignore at their own peril. "[M]aybe they'll all buy my book and give it to [World Bank President] Paul Wolfowitz for Christmas," he writes hopefully.
O'Rourke misses no opportunity to lob predictable barbs at politicians (who, by some remarkable stroke of chance, all happen to be bumptious and venal, while all private commerce-loving citizens are honest and virtuous). For example, in his very limited discussion of the division of labor, O'Rourke quips that "the specialization of politics at least keeps politicians from running businesses where their stupidity and ignorance could do even greater harm to economic growth."
But something strange happens when O'Rourke gets to Book 5, where Smith wrestles with the proper functions of government and recommends the kind of mildly progressive state that makes free-market devotees like O'Rourke break out in hives. O'Rourke decides that in applying his "lofty intellect to mundane political issues, [Smith] yielded to the temptation to slide down Olympus." Here, the "truly sagacious" Smith of Book 2 is suddenly spouting "mixed-up pronouncements."
And when the Scottish political economist suggests that landowners should be taxed on the rent they collect, O'Rourke can only conclude, "Smith must have been completely out of his head." Then again, "thinking about taxes leads to bad thinking," O'Rourke explains. Except, of course, when Smith opposes inheritance taxes and value-added taxes, as he also does in Book 5, which makes him OK.
If O'Rourke weren't a Cato Institute fellow, a reader might wonder whether the satirist had in fact produced a brilliant satire of the righteous black-and-white sermonizing to which free-market devotees are often prone. At some points, he is so over-the-top, so unwilling to engage in anything resembling nuance, it feels like it must be a parody. At one point, he even writes: "[N]o people are as rapacious and grabby as those who work for the public good. They don't want mere millions or billions of dollars to satisfy personal avarice," he explains. "They seek trillions of dollars necessary to make life on earth better for everyone." Imagine the horror! True evil revealed at last! Parody or not, anyone who wants to understand what Adam Smith was up to would be well-advised to decline O'Rourke's offer and instead read the darn books for themselves (preferably in annotated and abridged form).
Lee Drutman is the co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
If you want other stories on this topic, search the Archives at latimes.com/archives.
Article licensing and reprint options
Copyright 2007 Los Angeles Times
BOOK REVIEW
Adam Smith -- yuks included
On the Wealth of Nations Books That Changed the World P.J. O'Rourke Atlantic Monthly Press: 256 pp., $21.95
By Lee Drutman
Special to The Times
January 19, 2007
ADAM SMITH is an Enlightenment-era moral philosopher best known for writing "The Wealth of Nations," a founding text of modern economics that checks in at more than 900 dense pages — enough to discourage many a would-be reader.
P.J. O'Rourke is an impudent political satirist with a penchant for quippy one-liners, best known for such books as "Parliament of Whores" and "Give War a Chance." He is also the choice of the editors at Atlantic Monthly Press to be Smith's explicator for a mass audience as part of the publisher's "Books That Changed the World" series. (The jacket headline: "P.J. O'Rourke reads Adam Smith so you don't have to.")
It's not the best of matches. For one, O'Rourke is overly fond of Smith ("Even when he was wrong he was smarter than other people."), which makes him a satirist with nothing really to satirize. Hence there are fewer snappy one-liners than usual, and his jokes often feel forced: "Then there is the matter of those goods and services — Adam Smith's gross domestic product. I am as grossly domestic as anyone. Where's the product?" Hah, hah, hah.
The bigger problem is that O'Rourke is at best an amateur economist — a point he is surprisingly happy to make several times (ah, self-deprecating wit). But he is a Mencken research fellow at the über-libertarian Cato Institute, where he appears to have imbibed a very particular, morality-play view (markets = good; politicians = bad) of Smith's much more complicated and nuanced magnum opus. "Free markets lead to thinking," O'Rourke writes, "that eternal enemy of politicians."
Unfortunately for those hoping to acquire a reasonable understanding of Smith, O'Rourke is either unwilling or unable to probe "The Wealth of Nations" for anything more than a series of Cato-approved talking points to the effect that unfettered commerce rules, governments drool.
Nowhere, for example, does O'Rourke really probe the workings of crucial Smith concepts such as comparative advantage, the division of labor or the nature of competition. Nor does he explore Smith's controversial characterization of human nature as innately predisposed to "truck, barter, and exchange." And though he touches on Smith's conclusions about man being much disposed to sympathy for his fellow man, he does not explore how Smith's praise of self-interest is fundamentally circumscribed by this assumption — that the market is perfectly self-regulating only if you believe that people won't cheat each other if they have the chance. Also missing: Smith's disregard for joint-stock corporations, which he criticized for their greed, irresponsibility and generally anti-competitive nature.
Instead, O'Rourke's approach is to plod through the five books of "The Wealth of Nations" in order, telling us that Smith said this, Smith said that, furnishing direct quote after direct quote, cherry-picking his way to a series of pro-market policy prescriptions that today's leaders ignore at their own peril. "[M]aybe they'll all buy my book and give it to [World Bank President] Paul Wolfowitz for Christmas," he writes hopefully.
O'Rourke misses no opportunity to lob predictable barbs at politicians (who, by some remarkable stroke of chance, all happen to be bumptious and venal, while all private commerce-loving citizens are honest and virtuous). For example, in his very limited discussion of the division of labor, O'Rourke quips that "the specialization of politics at least keeps politicians from running businesses where their stupidity and ignorance could do even greater harm to economic growth."
But something strange happens when O'Rourke gets to Book 5, where Smith wrestles with the proper functions of government and recommends the kind of mildly progressive state that makes free-market devotees like O'Rourke break out in hives. O'Rourke decides that in applying his "lofty intellect to mundane political issues, [Smith] yielded to the temptation to slide down Olympus." Here, the "truly sagacious" Smith of Book 2 is suddenly spouting "mixed-up pronouncements."
And when the Scottish political economist suggests that landowners should be taxed on the rent they collect, O'Rourke can only conclude, "Smith must have been completely out of his head." Then again, "thinking about taxes leads to bad thinking," O'Rourke explains. Except, of course, when Smith opposes inheritance taxes and value-added taxes, as he also does in Book 5, which makes him OK.
If O'Rourke weren't a Cato Institute fellow, a reader might wonder whether the satirist had in fact produced a brilliant satire of the righteous black-and-white sermonizing to which free-market devotees are often prone. At some points, he is so over-the-top, so unwilling to engage in anything resembling nuance, it feels like it must be a parody. At one point, he even writes: "[N]o people are as rapacious and grabby as those who work for the public good. They don't want mere millions or billions of dollars to satisfy personal avarice," he explains. "They seek trillions of dollars necessary to make life on earth better for everyone." Imagine the horror! True evil revealed at last! Parody or not, anyone who wants to understand what Adam Smith was up to would be well-advised to decline O'Rourke's offer and instead read the darn books for themselves (preferably in annotated and abridged form).
Lee Drutman is the co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
If you want other stories on this topic, search the Archives at latimes.com/archives.
Article licensing and reprint options
Copyright 2007 Los Angeles Times
Thursday, January 11, 2007
CEOs gone wild, cont'd
Lee Drutman: CEOs gone wild, cont’d
Providence Journal
07:23 AM EST on Thursday, January 11, 2007
BERKELEY, Calif.
And so the saga continues. For the latest installment of “greedy CEOs gone wild,” we bring you outgoing Home Depot Chief Executive Officer Robert Nardelli, who managed to somehow finagle a $210 million severance package after a troubled six-year period during which the company’s stock fell 7.9 percent and competitor Lowe’s gained significant market share.
Then again, constructing opulent compensation packages on sand is nothing new to the good folks at Home Depot. Not only was company co-founder Kenneth Langone on the New York Stock Exchange board of directors that awarded Richard Grasso $188 million, but Langone was also Grasso’s staunchest defender. “Dick’s pay is fair and reasonable,” Langone was quoted as saying once Grasso’s fortune became public. Grasso had served as a member of Home Depot’s board of directors.
Though Nardelli still falls short of former Exxon CEO Lee Raymond, who got a record $357 million retirement package in 2005, this latest round of outrage comes at an opportune time for reform. The Democrats are now in control of Congress, and Massachusetts Democrat Barney Frank, a long-time critic of extreme executive compensation, is now chairman of the House Financial Services Committee and seems to be spoiling for a fight.
Last November, he introduced the Protection Against Executive Compensation Abuse Act, to give shareholders the right to review and approve CEO pay plans. He continues to talk tough.
The Nardelli debacle also comes close on the heels of a puzzling pay disclosure about-face at the Securities and Exchange Commission that is further fueling outrage.
Just three days before Christmas, the SEC bowed to corporate pressure and reversed course by allowing companies to delay disclosing stock-option grants, so they can report smaller executive-compensation totals. SEC Chairman Christopher Cox called it “a relative technicality,” but investor advocates knew better. They were up in arms. And Frank seized on the moment, issuing a statement making the case for legislation: “Backtracking by the SEC on this important matter of stock options reinforces my determination that Congress must act to deal with the problem of executive compensation that is now unconstrained by anything except the self-restraint of top executives.”
Of course, to call it self-restraint is a euphemism if there ever was one. Between 1993 and 2003, the percentage of company profits going to the top five executives more than doubled, growing from 4.8 percent to 10.3 percent. In 2004, the median Fortune 500 CEO received compensation worth $15 million. At last count, the average CEO was earning more than 400 times the average of worker pay, and more than 800 times the minimum wage.
One wonders: How much longer can this go on? CEOs taking 10 percent off the top off all corporate profits, making 400 times more than the average worker (a truly remarkable figure, when you consider the fact that in all other advanced industrial countries, the ratio is about 20 to 1).
Congressman Frank’s approach — give the mass of shareholders, the actual owners of the company, some say — makes perfect sense and would probably do a good amount to curb extravagant pay packages. It should hardly be controversial. If a common-sense reform like this, tackling an issue so universally agreed to be a problem, cannot gain traction in a Democratic Congress, then this is more than a case of just CEOs gone wild. It’s a case of narrow corporate interests gone wild in our political system.
http://www.projo.com/opinion/columnists/content/CT_drut11_01-11-07_053NPM1.1f57712.html#
Providence Journal
07:23 AM EST on Thursday, January 11, 2007
BERKELEY, Calif.
And so the saga continues. For the latest installment of “greedy CEOs gone wild,” we bring you outgoing Home Depot Chief Executive Officer Robert Nardelli, who managed to somehow finagle a $210 million severance package after a troubled six-year period during which the company’s stock fell 7.9 percent and competitor Lowe’s gained significant market share.
Then again, constructing opulent compensation packages on sand is nothing new to the good folks at Home Depot. Not only was company co-founder Kenneth Langone on the New York Stock Exchange board of directors that awarded Richard Grasso $188 million, but Langone was also Grasso’s staunchest defender. “Dick’s pay is fair and reasonable,” Langone was quoted as saying once Grasso’s fortune became public. Grasso had served as a member of Home Depot’s board of directors.
Though Nardelli still falls short of former Exxon CEO Lee Raymond, who got a record $357 million retirement package in 2005, this latest round of outrage comes at an opportune time for reform. The Democrats are now in control of Congress, and Massachusetts Democrat Barney Frank, a long-time critic of extreme executive compensation, is now chairman of the House Financial Services Committee and seems to be spoiling for a fight.
Last November, he introduced the Protection Against Executive Compensation Abuse Act, to give shareholders the right to review and approve CEO pay plans. He continues to talk tough.
The Nardelli debacle also comes close on the heels of a puzzling pay disclosure about-face at the Securities and Exchange Commission that is further fueling outrage.
Just three days before Christmas, the SEC bowed to corporate pressure and reversed course by allowing companies to delay disclosing stock-option grants, so they can report smaller executive-compensation totals. SEC Chairman Christopher Cox called it “a relative technicality,” but investor advocates knew better. They were up in arms. And Frank seized on the moment, issuing a statement making the case for legislation: “Backtracking by the SEC on this important matter of stock options reinforces my determination that Congress must act to deal with the problem of executive compensation that is now unconstrained by anything except the self-restraint of top executives.”
Of course, to call it self-restraint is a euphemism if there ever was one. Between 1993 and 2003, the percentage of company profits going to the top five executives more than doubled, growing from 4.8 percent to 10.3 percent. In 2004, the median Fortune 500 CEO received compensation worth $15 million. At last count, the average CEO was earning more than 400 times the average of worker pay, and more than 800 times the minimum wage.
One wonders: How much longer can this go on? CEOs taking 10 percent off the top off all corporate profits, making 400 times more than the average worker (a truly remarkable figure, when you consider the fact that in all other advanced industrial countries, the ratio is about 20 to 1).
Congressman Frank’s approach — give the mass of shareholders, the actual owners of the company, some say — makes perfect sense and would probably do a good amount to curb extravagant pay packages. It should hardly be controversial. If a common-sense reform like this, tackling an issue so universally agreed to be a problem, cannot gain traction in a Democratic Congress, then this is more than a case of just CEOs gone wild. It’s a case of narrow corporate interests gone wild in our political system.
http://www.projo.com/opinion/columnists/content/CT_drut11_01-11-07_053NPM1.1f57712.html#
Friday, January 05, 2007
Reinventing Capitalism - Los Angeles Times
http://www.calendarlive.com/books/reviews/cl-et-book5jan05,0,4914102.story?coll=cl-books-reviews
BOOK REVIEW
Reinventing capitalism
Capitalism 3.0 A Guide to Reclaiming the Commons Peter Barnes Berrett-Koehler: 198 pp., $22.95
By Lee Drutman
Special to The Times
January 5, 2007
PETER BARNES is a businessman in a quandary. He's a firm believer in free markets, but he's also convinced that our current version of resource-depleting, pollution-spewing capitalism is pushing nature ever closer to collapse — and generating a gaping divide between rich and poor that increasingly defies all conceptions of fairness.
Yet Barnes is no fan of government either. It's too susceptible to corporate pressure to be effective, he argues, and besides, do we really want politicians setting prices?
The co-founder and former president of Working Assets Long Distance, a telephone service that donates to nonprofit organizations, thinks he has a better idea: Establish an independent "common wealth" sector to protect shared assets like air and water, and maybe even cultures and communities. Secure these assets in a trust that belongs to everyone, he writes in "Capitalism 3.0," and profit-making corporations couldn't wantonly gobble them up. Plus, everybody would benefit equally from their use. If it sounds farfetched, maybe that's the point: "We ignore common wealth because it lacks price tags and property rights," warns Barnes, who already has incorporated a nonprofit organization called the Sky Trust to protect the atmosphere.
Barnes' tale of capitalism gone mad begins with the Industrial Revolution, when the primary social problem was a scarcity of goods and the primary economic problem was coordinating limited investment capital. Land and natural resources, by contrast, appeared endless. Hence, what he calls Capitalism 1.0 developed with rules and practices that privileged capital above all else, particularly the joint-stock corporation.
By 1950, scarcity was no longer a problem. But the great engines of capitalism, already programmed to maximize production and profitability, were incapable of slowing down. Instead, they entered a new phase Barnes calls Capitalism 2.0. Instead of filling human and social needs, he writes, they began creating what Dr. Seuss' villain in "The Lorax" calls "thneeds," things we didn't know we needed. Worse, corporations continue to impose their "illth," British critic and author John Ruskin's word for goods produced by an economy that don't contribute to human welfare, on a natural environment whose capacity for absorbing is far less boundless that previously thought.
Barnes is at his best in diagnosing the structural maladies in today's iteration of capitalism, which has created a "world is awash with capital, most of it devoted to speculation" but "healthy ecosystems are increasingly scarce." The main problem, as he sees it, has to do with the three algorithms that drive market behavior: Maximize return to capital; distribute property income on a per-share basis, and the value, or price, put on nature is zero. And, he notes, 5% of the world's people control half the property shares.
The obvious moral of "The Lorax" parable, in which the evil Once-ler cuts down all the truffula trees to make thneeds, Barnes says, is that "trees need property rights too." If the trees belonged to everyone, held in trust, their price would not be zero — the Once-ler would have to pay (and the trust would be responsible for protecting the trees from extinction). Such a set-up, the author argues, would not only protect nature, but also allow everyone (not just the wealthy) to benefit equally from its occasional use. If such a plan were implemented properly, this would be what Barnes calls "Capitalism 3.0," in which "[w]e'll have more things we truly need — healthier ecosystems, communities, culture — and fewer thneeds."
Barnes' new and improved capitalism is more an exploration than a detailed plan. Even if the details prove unworkable (and they may very well), he deserves plaudits for offering a way past the stale debates of statism versus privatization. Instead of chiding greedy capitalists and venal politicians, perhaps we ought to look more closely at the rules and incentives to which they are duly bound to respond. And perhaps in doing so we will discover something new right under our noses.
Lee Drutman is co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
BOOK REVIEW
Reinventing capitalism
Capitalism 3.0 A Guide to Reclaiming the Commons Peter Barnes Berrett-Koehler: 198 pp., $22.95
By Lee Drutman
Special to The Times
January 5, 2007
PETER BARNES is a businessman in a quandary. He's a firm believer in free markets, but he's also convinced that our current version of resource-depleting, pollution-spewing capitalism is pushing nature ever closer to collapse — and generating a gaping divide between rich and poor that increasingly defies all conceptions of fairness.
Yet Barnes is no fan of government either. It's too susceptible to corporate pressure to be effective, he argues, and besides, do we really want politicians setting prices?
The co-founder and former president of Working Assets Long Distance, a telephone service that donates to nonprofit organizations, thinks he has a better idea: Establish an independent "common wealth" sector to protect shared assets like air and water, and maybe even cultures and communities. Secure these assets in a trust that belongs to everyone, he writes in "Capitalism 3.0," and profit-making corporations couldn't wantonly gobble them up. Plus, everybody would benefit equally from their use. If it sounds farfetched, maybe that's the point: "We ignore common wealth because it lacks price tags and property rights," warns Barnes, who already has incorporated a nonprofit organization called the Sky Trust to protect the atmosphere.
Barnes' tale of capitalism gone mad begins with the Industrial Revolution, when the primary social problem was a scarcity of goods and the primary economic problem was coordinating limited investment capital. Land and natural resources, by contrast, appeared endless. Hence, what he calls Capitalism 1.0 developed with rules and practices that privileged capital above all else, particularly the joint-stock corporation.
By 1950, scarcity was no longer a problem. But the great engines of capitalism, already programmed to maximize production and profitability, were incapable of slowing down. Instead, they entered a new phase Barnes calls Capitalism 2.0. Instead of filling human and social needs, he writes, they began creating what Dr. Seuss' villain in "The Lorax" calls "thneeds," things we didn't know we needed. Worse, corporations continue to impose their "illth," British critic and author John Ruskin's word for goods produced by an economy that don't contribute to human welfare, on a natural environment whose capacity for absorbing is far less boundless that previously thought.
Barnes is at his best in diagnosing the structural maladies in today's iteration of capitalism, which has created a "world is awash with capital, most of it devoted to speculation" but "healthy ecosystems are increasingly scarce." The main problem, as he sees it, has to do with the three algorithms that drive market behavior: Maximize return to capital; distribute property income on a per-share basis, and the value, or price, put on nature is zero. And, he notes, 5% of the world's people control half the property shares.
The obvious moral of "The Lorax" parable, in which the evil Once-ler cuts down all the truffula trees to make thneeds, Barnes says, is that "trees need property rights too." If the trees belonged to everyone, held in trust, their price would not be zero — the Once-ler would have to pay (and the trust would be responsible for protecting the trees from extinction). Such a set-up, the author argues, would not only protect nature, but also allow everyone (not just the wealthy) to benefit equally from its occasional use. If such a plan were implemented properly, this would be what Barnes calls "Capitalism 3.0," in which "[w]e'll have more things we truly need — healthier ecosystems, communities, culture — and fewer thneeds."
Barnes' new and improved capitalism is more an exploration than a detailed plan. Even if the details prove unworkable (and they may very well), he deserves plaudits for offering a way past the stale debates of statism versus privatization. Instead of chiding greedy capitalists and venal politicians, perhaps we ought to look more closely at the rules and incentives to which they are duly bound to respond. And perhaps in doing so we will discover something new right under our noses.
Lee Drutman is co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
Saturday, December 16, 2006
SarbOx under assault -- TomPaine.com
SarbOx Under Assault
Lee Drutman
December 14, 2006
Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
Last week, an official-sounding group called the Committee on Capital Markets Regulation released an equally official-sounding document called the “Interim Report of the Committee on Capital Markets Regulation." In this report, a star-studded group of financial industry cheerleaders from academia and business (but with no official capacity) argued that the competitiveness of U.S. financial markets is at stake, and restoring competitiveness depends not only on rolling back reforms enacted in the wake of Enron, but on creating an even looser regulatory environment than existed before.
The main target is the Sarbanes-Oxley Act of 2002 (SarbOx, for short), the accounting and securities reform legislation inspired by Enron, WorldCom and all the rest. Financial industry leaders never liked the law, and now, four and a half years later, they are hoping that memories of the scandals have finally faded enough to go back to the happy-go-lucky style of accounting that made Wall Street much more fun and profitable for those few in the know.
Don’t be fooled. The committee’s arguments are based on a number of dubious claims and a misguided set of priorities. But, then again, given that the committee comprises representatives of many of the same accounting and Wall Street firms that were behind the recent wave of corporate scandals, perhaps we shouldn’t be surprised to observe yet another questionable sleight of hand.
According to the report, a growing number of companies are looking to overseas markets to raise capital, rather than deal with the allegedly burdensome regulatory environment of U.S. financial markets. According to the report, in 2000, half of the money raised in global IPOs came from U.S. exchanges, whereas in 2005 only 5 percent came from U.S. exchanges.
But to blame this on the regulatory environment is misleading. For one, 2000 was the height of the technology IPO boom in the U.S., hardly a representative year for comparison. And in retrospect, there were many, many companies that really shouldn’t have been taken public, and a lot of investors would have actually been much better off had Wall Street not engaged in a reckless bout of IPO cheerleading. If tighter had rules stemmed the IPO flow, this actually would have been a good thing.
Moreover, as The New Republic’s Clay Risen recently noted, a likely reason that start-ups may be seeking out overseas markets may not be the regulations, but rather the greed of U.S. investment banks, which charge 6.5 to 7 percent in underwriting fees—as opposed to London firms who charge 3 to 4 percent. London markets have raised $40 billion through late October this year, as opposed to $30 billion in New York.
The Committee on Capital Markets Regulation report also notes that while in 1995 only 2.2 percent of public takeovers involved taking a company private, by 2004, 26 percent involved taking companies private. But is this all because of overregulation? Perhaps the pressure on Wall Street for constant steady quarterly earnings growth has become too intense and unmanageable, making it nearly impossible for firms to do anything resembling long-term planning anymore and making private ownership much more appealing. And maybe more companies going private is not such a bad thing, considering the often destructive short-termism that many public companies are forced to engage in to meet Wall Street expectations.
Of course, it is certainly possible and that the heightened regulatory climate has pushed some IPOs overseas and pushed at least some companies to seek private as opposed to public funding. But even if this is the case, should we really be worried about these trends? Certainly, there is no shortage of capital to grow the economy among private and overseas investors.
But Wall Street firms are certainly worried. Companies choosing to raise capital privately or overseas means less lucrative underwriting business for the big Wall Street firms. Undoubtedly, a more anything-goes approach to securities regulation would be a boon to these major investment banks, as it was in the late 1990s.
But the whole reason that we have the Sarbanes-Oxley Act is because we already tried the anything-goes approach to securities regulation. It didn’t work. Made-up corporate profits, cheered on by conflicted Wall Street analysts, duped small investors out of trillions of dollars in retirement savings. The whole point of Sarbanes-Oxley was to restore faith in markets at a time when investors had good reason to doubt. How easily we forget the very real possibility that investors could take their money and put it in treasury bonds if they lost confidence that corporate financial reports represented a realistic picture and not some elaborate trompe l’oeil . Certainly, big Wall Street firms don’t want that to happen.
It may even turn out that in the long run, having a tightly-regulated securities market is a comparative advantage. Investors tend to be risk averse, and many would prefer to invest in markets where they know what they are getting, especially when it is their retirement security at stake (even if that means a slightly diminished potential for returns). If other financial markets suffer a series of scandals (the chance of which are increased by lax regulations), a listing on an American stock market will start to look awfully good by comparison.
Still, the politics of this all promise to be interesting. This report was timed to come out right after the election, and incoming House Speaker Nancy Pelosi, D-Calif., has reportedly promised that revising Sarbanes-Oxley is a top priority. (Pelosi receives a lot of money from Silicon Valley investors, who are eager to see financial regulations loosened.) Then again, the financial industry has complained about Sarbanes-Oxley for years to a Republican Congress, with no effect. But they do not appear about to give up, either.
Certainly, some small technical fixes to Sarbanes-Oxley, particularly to the dreaded and demonized Section 404, may be in order. But a large-scale regulatory rollback of the type recommended in the “Interim Report of the Committee on Capital Markets Regulation” would be foolish. There is little direct evidence that tighter regulations are the main reason that companies are going private or IPOs are going overseas. Nor should these trends necessarily be troublesome to anybody except the big Wall Street firms that lose out on a lucrative underwriting business.
http://www.tompaine.com/articles/2006/12/14/sarbox_under_assault.php
Lee Drutman
December 14, 2006
Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
Last week, an official-sounding group called the Committee on Capital Markets Regulation released an equally official-sounding document called the “Interim Report of the Committee on Capital Markets Regulation." In this report, a star-studded group of financial industry cheerleaders from academia and business (but with no official capacity) argued that the competitiveness of U.S. financial markets is at stake, and restoring competitiveness depends not only on rolling back reforms enacted in the wake of Enron, but on creating an even looser regulatory environment than existed before.
The main target is the Sarbanes-Oxley Act of 2002 (SarbOx, for short), the accounting and securities reform legislation inspired by Enron, WorldCom and all the rest. Financial industry leaders never liked the law, and now, four and a half years later, they are hoping that memories of the scandals have finally faded enough to go back to the happy-go-lucky style of accounting that made Wall Street much more fun and profitable for those few in the know.
Don’t be fooled. The committee’s arguments are based on a number of dubious claims and a misguided set of priorities. But, then again, given that the committee comprises representatives of many of the same accounting and Wall Street firms that were behind the recent wave of corporate scandals, perhaps we shouldn’t be surprised to observe yet another questionable sleight of hand.
According to the report, a growing number of companies are looking to overseas markets to raise capital, rather than deal with the allegedly burdensome regulatory environment of U.S. financial markets. According to the report, in 2000, half of the money raised in global IPOs came from U.S. exchanges, whereas in 2005 only 5 percent came from U.S. exchanges.
But to blame this on the regulatory environment is misleading. For one, 2000 was the height of the technology IPO boom in the U.S., hardly a representative year for comparison. And in retrospect, there were many, many companies that really shouldn’t have been taken public, and a lot of investors would have actually been much better off had Wall Street not engaged in a reckless bout of IPO cheerleading. If tighter had rules stemmed the IPO flow, this actually would have been a good thing.
Moreover, as The New Republic’s Clay Risen recently noted, a likely reason that start-ups may be seeking out overseas markets may not be the regulations, but rather the greed of U.S. investment banks, which charge 6.5 to 7 percent in underwriting fees—as opposed to London firms who charge 3 to 4 percent. London markets have raised $40 billion through late October this year, as opposed to $30 billion in New York.
The Committee on Capital Markets Regulation report also notes that while in 1995 only 2.2 percent of public takeovers involved taking a company private, by 2004, 26 percent involved taking companies private. But is this all because of overregulation? Perhaps the pressure on Wall Street for constant steady quarterly earnings growth has become too intense and unmanageable, making it nearly impossible for firms to do anything resembling long-term planning anymore and making private ownership much more appealing. And maybe more companies going private is not such a bad thing, considering the often destructive short-termism that many public companies are forced to engage in to meet Wall Street expectations.
Of course, it is certainly possible and that the heightened regulatory climate has pushed some IPOs overseas and pushed at least some companies to seek private as opposed to public funding. But even if this is the case, should we really be worried about these trends? Certainly, there is no shortage of capital to grow the economy among private and overseas investors.
But Wall Street firms are certainly worried. Companies choosing to raise capital privately or overseas means less lucrative underwriting business for the big Wall Street firms. Undoubtedly, a more anything-goes approach to securities regulation would be a boon to these major investment banks, as it was in the late 1990s.
But the whole reason that we have the Sarbanes-Oxley Act is because we already tried the anything-goes approach to securities regulation. It didn’t work. Made-up corporate profits, cheered on by conflicted Wall Street analysts, duped small investors out of trillions of dollars in retirement savings. The whole point of Sarbanes-Oxley was to restore faith in markets at a time when investors had good reason to doubt. How easily we forget the very real possibility that investors could take their money and put it in treasury bonds if they lost confidence that corporate financial reports represented a realistic picture and not some elaborate trompe l’oeil . Certainly, big Wall Street firms don’t want that to happen.
It may even turn out that in the long run, having a tightly-regulated securities market is a comparative advantage. Investors tend to be risk averse, and many would prefer to invest in markets where they know what they are getting, especially when it is their retirement security at stake (even if that means a slightly diminished potential for returns). If other financial markets suffer a series of scandals (the chance of which are increased by lax regulations), a listing on an American stock market will start to look awfully good by comparison.
Still, the politics of this all promise to be interesting. This report was timed to come out right after the election, and incoming House Speaker Nancy Pelosi, D-Calif., has reportedly promised that revising Sarbanes-Oxley is a top priority. (Pelosi receives a lot of money from Silicon Valley investors, who are eager to see financial regulations loosened.) Then again, the financial industry has complained about Sarbanes-Oxley for years to a Republican Congress, with no effect. But they do not appear about to give up, either.
Certainly, some small technical fixes to Sarbanes-Oxley, particularly to the dreaded and demonized Section 404, may be in order. But a large-scale regulatory rollback of the type recommended in the “Interim Report of the Committee on Capital Markets Regulation” would be foolish. There is little direct evidence that tighter regulations are the main reason that companies are going private or IPOs are going overseas. Nor should these trends necessarily be troublesome to anybody except the big Wall Street firms that lose out on a lucrative underwriting business.
http://www.tompaine.com/articles/2006/12/14/sarbox_under_assault.php
Wednesday, December 13, 2006
Democrats and lobbying - The Providence Journal
Democrats and lobbying
01:00 AM EST on Monday, December 11, 2006
BERKELEY, Calif. As the ascendant Democratic majority takes center stage in the Washington political drama, one of the emerging (and poll-tested!) motifs is a promise to end the “culture of corruption.”
Nancy Pelosi, the new speaker of the House, is busy practicing her lines: “The Democratic ethics package will break the link between lobbyists and legislation.…The American people want greater integrity in Washington, and Democrats pledge to make this the most honest, ethical, and open Congress in history.” Democratic leaders are declaring that reforms will be a legislative priority: No more gifts, no more travel, no more of those ugly appurtenances of legal bribery.
But, wait, what’s that scurrying noise, stage left? Why, it sounds like the steady march of former Democratic staffers heading off to Washington lobby firms, lured by the appeal of quadrupling their salaries now that their political connections are suddenly valuable. Why, even Nancy Pelosi’s own former chief of staff, George Crawford, has reportedly been hired to lobby on behalf of biotech company Amgen. It adds up to a clever bit of dramatic irony that makes all those histrionics about “The People’s House will not be an auction House” (Pelosi, again) seem at best quixotic (and at worst, insincere).
To understand why the proposed reforms are bound to be ineffectual, let’s ask a purposely naïve question: Why are lobbying firms so eager to hire Democrats? If private interests achieve so much influence through nefarious perks like gifts, meals, and plane rides (the banning of which will supposedly end the culture of corruption), why should lobbying firms care about the partisan pedigree of their hires? After all, a Republican can presumably trade away a steak dinner for a surreptitious tax write-off just as well as a Democrat.
The answer, of course, is that personal connections matter (surprise!). Washington, D.C., is a city of dense interpersonal networks, and it turns out that if you want to get a friendly audience before a member of Congress, it sure helps to hire a trusted former colleague to make your case.
One problem is that these kinds of connections come at a very high price. A former Democratic staffer with solid ties on Capitol Hill is going to cost you a few hundred grand. Which means that generally only those organizations with bulging political budgets (mostly the large corporations and wealthy trade groups that dominate the lobbying landscape) can purchase that kind of access. A related problem is that congressional staffers increasingly rely on transitioning to lobbying careers post-Hill to pay off their mortgages and send their kids to college. And as they do, they become more likely to lend sympathetic support to today’s lobbyists, who might have a job for them tomorrow. Connections, connections, connections.
Sure, we could slow the “revolving door” — increase the amount of time that former members have to wait before they can lobby their colleagues from one, to say, two years, as Democrats have proposed. But even if you take away all the former members and all the former staffers, you would still have a cadre of lobbyists who are specialists at the personal charm game, who are experts at establishing rich friendships and relationships just by hanging around. And who often win trust by providing a wide range of legislative support services beyond the capacity of harried and overworked congressional staffs.
But there is one way to at least weaken the link between lobbyists and legislation: take the private money out of campaigns. These days, winning campaigns cost on the order of millions of dollars, especially close ones. And fundraising is always much easier when lawmakers take the time to meet with a potential donor’s lobbyists than when they don’t. Problem is, as with lobbying, the vast majority of campaign money comes through a limited number of wealthy organizations. Which means that as long as candidates rely on private money to get re-elected, they are going to keep prioritizing the concerns of major campaign donors over other potential issues? Unfortunately, public funding of elections remains entirely off-stage in the current discussions of lobbying reform.
So then, let the Democrats speak boldly of ending the “culture of corruption.” There is certainly no great harm in banning private gifts and meals and travel, in increasing disclosure on earmarks and slowing the revolving door. But the trail of former Democratic staffers ascending to six-figure lobbying jobs suggests getting to the heart of unequal influence in Washington will require a kind of ugly introspection that is rare in politics.
A good test will be to watch closely what happens with the Democrats’ campaign promises to go tough on the pharmaceutical industry and negotiate bulk discounts for Medicare. Will the Democrats stick to their populist guns? Or will a small army of jovial pharmaceutical lobbyists, armed to the hilt with scientific studies, campaign cash, and connections, send those of us who care about the integrity of the political process reaching for more Prozac?
Lee Drutman, a frequent contributor, is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
http://www.projo.com/opinion/columnists/content/CT_Drut11_12-11-06_3F37QCM.11e1fc9.html#
01:00 AM EST on Monday, December 11, 2006
BERKELEY, Calif. As the ascendant Democratic majority takes center stage in the Washington political drama, one of the emerging (and poll-tested!) motifs is a promise to end the “culture of corruption.”
Nancy Pelosi, the new speaker of the House, is busy practicing her lines: “The Democratic ethics package will break the link between lobbyists and legislation.…The American people want greater integrity in Washington, and Democrats pledge to make this the most honest, ethical, and open Congress in history.” Democratic leaders are declaring that reforms will be a legislative priority: No more gifts, no more travel, no more of those ugly appurtenances of legal bribery.
But, wait, what’s that scurrying noise, stage left? Why, it sounds like the steady march of former Democratic staffers heading off to Washington lobby firms, lured by the appeal of quadrupling their salaries now that their political connections are suddenly valuable. Why, even Nancy Pelosi’s own former chief of staff, George Crawford, has reportedly been hired to lobby on behalf of biotech company Amgen. It adds up to a clever bit of dramatic irony that makes all those histrionics about “The People’s House will not be an auction House” (Pelosi, again) seem at best quixotic (and at worst, insincere).
To understand why the proposed reforms are bound to be ineffectual, let’s ask a purposely naïve question: Why are lobbying firms so eager to hire Democrats? If private interests achieve so much influence through nefarious perks like gifts, meals, and plane rides (the banning of which will supposedly end the culture of corruption), why should lobbying firms care about the partisan pedigree of their hires? After all, a Republican can presumably trade away a steak dinner for a surreptitious tax write-off just as well as a Democrat.
The answer, of course, is that personal connections matter (surprise!). Washington, D.C., is a city of dense interpersonal networks, and it turns out that if you want to get a friendly audience before a member of Congress, it sure helps to hire a trusted former colleague to make your case.
One problem is that these kinds of connections come at a very high price. A former Democratic staffer with solid ties on Capitol Hill is going to cost you a few hundred grand. Which means that generally only those organizations with bulging political budgets (mostly the large corporations and wealthy trade groups that dominate the lobbying landscape) can purchase that kind of access. A related problem is that congressional staffers increasingly rely on transitioning to lobbying careers post-Hill to pay off their mortgages and send their kids to college. And as they do, they become more likely to lend sympathetic support to today’s lobbyists, who might have a job for them tomorrow. Connections, connections, connections.
Sure, we could slow the “revolving door” — increase the amount of time that former members have to wait before they can lobby their colleagues from one, to say, two years, as Democrats have proposed. But even if you take away all the former members and all the former staffers, you would still have a cadre of lobbyists who are specialists at the personal charm game, who are experts at establishing rich friendships and relationships just by hanging around. And who often win trust by providing a wide range of legislative support services beyond the capacity of harried and overworked congressional staffs.
But there is one way to at least weaken the link between lobbyists and legislation: take the private money out of campaigns. These days, winning campaigns cost on the order of millions of dollars, especially close ones. And fundraising is always much easier when lawmakers take the time to meet with a potential donor’s lobbyists than when they don’t. Problem is, as with lobbying, the vast majority of campaign money comes through a limited number of wealthy organizations. Which means that as long as candidates rely on private money to get re-elected, they are going to keep prioritizing the concerns of major campaign donors over other potential issues? Unfortunately, public funding of elections remains entirely off-stage in the current discussions of lobbying reform.
So then, let the Democrats speak boldly of ending the “culture of corruption.” There is certainly no great harm in banning private gifts and meals and travel, in increasing disclosure on earmarks and slowing the revolving door. But the trail of former Democratic staffers ascending to six-figure lobbying jobs suggests getting to the heart of unequal influence in Washington will require a kind of ugly introspection that is rare in politics.
A good test will be to watch closely what happens with the Democrats’ campaign promises to go tough on the pharmaceutical industry and negotiate bulk discounts for Medicare. Will the Democrats stick to their populist guns? Or will a small army of jovial pharmaceutical lobbyists, armed to the hilt with scientific studies, campaign cash, and connections, send those of us who care about the integrity of the political process reaching for more Prozac?
Lee Drutman, a frequent contributor, is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
http://www.projo.com/opinion/columnists/content/CT_Drut11_12-11-06_3F37QCM.11e1fc9.html#
Monday, November 27, 2006
Myths about the election - Providence Journal
Lee Drutman: Myths about the election
Providence Journal
01:00 AM EST on Friday, November 24, 2006
BERKELEY, Calif. -- On Nov. 7, almost 79 million Americans -- roughly 40.4 percent of registered voters -- took some time out of their busy day to travel to their polling places, wait in line, and cast their votes. As far as turnout went, it was about average for a mid-term election, up slightly from 39.7 percent in the 2002 mid-term. (By comparison, an estimated 141 million Americans watched last year's Super Bowl).
Trying to make sense of the Democratic victories, the media quickly adopted a simple storyline and proclaimed a new paradigm: "Moderates Fed Up With Polarization," "Democrats Won with Votes on Loan," "GOP ceded the center and paid the price." And so on. The general consensus a couple of days later seemed to be clear: Karl Rove's once-brilliant play-to-the-base strategy was no longer brilliant. The voters were rejecting extremism this time around, and the Democrats somehow managed to have a few moderate candidates on hand to take advantage of this shocking new development.
As the Washington Post's E.J. Dionne put it (defining the conventional wisdom), "This election was the revenge of the center no less than it was the revenge of the left."
True, exit polls did show "independents" and "moderates" voting heavily Democratic; 57-percent-to-39 percent, and 60-to-38 percent, respectively. But one ought to interpret these results carefully. First of all, voting-behavior studies have consistently shown that the number of true "independents" is actually quite small -- most consistently vote one way or another, but prefer to think of themselves as independent (understandable). It is therefore a mistake to reify independents as a voting block, as many people do.
Voting-behavior scholarship also consistently shows that middle-of-the-road voters tend on average to be the least-informed and least-interested voters. This matters because it suggests another interpretation of what happened -- that among those know and who care the least about politics, those who lean Democrat turned out, while those who lean Republican stayed home. And the true independents -- who tend to be the least informed of all -- most likely made up their mind at the last minute based on a whim that could have just as easily gone the other way (if they voted at all).
If voters were resoundingly rejecting the extremist Republican agenda, then perhaps some self-identified Republicans should have been fed up enough to cross over and vote Democratic? This didn't happen. Exit polls showed that 91 percent of Republicans still voted Republican, just as 93 percent of Democrats voted Democratic.
Many were quick to dismiss the Republican play-to-the-base strategy as a failure this time around. But, given the widespread unpopularity of George W. Bush and of Republicans generally, that the election was even this close should be considered remarkable. Had George Allen not loosed "macaca" from his careless tongue, had a few thousand votes in Montana swung the other way, had Mark Foley been a more discreet pederast, had Iraq been just not quite that much of disaster, who knows? Maybe, by focusing on those who actually vote (remember, that's only about 40 percent of registered voters, and those voters tend to be the most partisan), the Republican base strategy made things closer than they should have been otherwise.
As for the birth of the new centrism many are proclaiming/hoping for, there is good reason to believe it will be still-born. For one, many of the losers in the election were Republican moderates from the Northeast, like Lincoln Chafee, Nancy Johnson and Rob Simmons. Without them, the Republican Party is likely to move even further right and be even less willing to compromise. And for all Bush's conciliatory talk of bipartisanship, six years of stubborn Democrat-bashing (particularly the over-the-top allusions to Democrats supporting terrorism) are hard to ignore. Moreover, Republicans have every incentive to frustrate Democratic attempts at lawmaking so that, in two years, they can then blame a Democratic Congress for accomplishing nothing; Democrats, meanwhile, will be increasingly tempted to use their investigatory power to make life unpleasant for Republicans, further polarizing the political atmosphere. Though it is true that some of the new Democrats are quite moderate, many of the new Democrats are also quite liberal. And especially in the House, those poised to ascend to committee leadership positions are among the most liberal members.
So, what's changed? In an election in which three in five of registered voters stayed home, Democrats won back the House and Senate by a narrow margin. This changes the balance of power in Washington (a major change, indeed). But it doesn't change that most people still don't vote in mid-term elections and that Democrats continue to vote solidly Democratic, and Republicans continued to vote solidly Republican. If it was a victory for the center, it was most likely only because Republican-leaning independents simply couldn't be bothered to vote this time around. Any claim to a new centrist paradigm rests on a fundamental misunderstanding of voting behavior.
-- Lee Drutman
Online at: http://www.projo.com/opinion/contributors/content/projo_20061124_25drut.2c3cf7e.html
Providence Journal
01:00 AM EST on Friday, November 24, 2006
BERKELEY, Calif. -- On Nov. 7, almost 79 million Americans -- roughly 40.4 percent of registered voters -- took some time out of their busy day to travel to their polling places, wait in line, and cast their votes. As far as turnout went, it was about average for a mid-term election, up slightly from 39.7 percent in the 2002 mid-term. (By comparison, an estimated 141 million Americans watched last year's Super Bowl).
Trying to make sense of the Democratic victories, the media quickly adopted a simple storyline and proclaimed a new paradigm: "Moderates Fed Up With Polarization," "Democrats Won with Votes on Loan," "GOP ceded the center and paid the price." And so on. The general consensus a couple of days later seemed to be clear: Karl Rove's once-brilliant play-to-the-base strategy was no longer brilliant. The voters were rejecting extremism this time around, and the Democrats somehow managed to have a few moderate candidates on hand to take advantage of this shocking new development.
As the Washington Post's E.J. Dionne put it (defining the conventional wisdom), "This election was the revenge of the center no less than it was the revenge of the left."
True, exit polls did show "independents" and "moderates" voting heavily Democratic; 57-percent-to-39 percent, and 60-to-38 percent, respectively. But one ought to interpret these results carefully. First of all, voting-behavior studies have consistently shown that the number of true "independents" is actually quite small -- most consistently vote one way or another, but prefer to think of themselves as independent (understandable). It is therefore a mistake to reify independents as a voting block, as many people do.
Voting-behavior scholarship also consistently shows that middle-of-the-road voters tend on average to be the least-informed and least-interested voters. This matters because it suggests another interpretation of what happened -- that among those know and who care the least about politics, those who lean Democrat turned out, while those who lean Republican stayed home. And the true independents -- who tend to be the least informed of all -- most likely made up their mind at the last minute based on a whim that could have just as easily gone the other way (if they voted at all).
If voters were resoundingly rejecting the extremist Republican agenda, then perhaps some self-identified Republicans should have been fed up enough to cross over and vote Democratic? This didn't happen. Exit polls showed that 91 percent of Republicans still voted Republican, just as 93 percent of Democrats voted Democratic.
Many were quick to dismiss the Republican play-to-the-base strategy as a failure this time around. But, given the widespread unpopularity of George W. Bush and of Republicans generally, that the election was even this close should be considered remarkable. Had George Allen not loosed "macaca" from his careless tongue, had a few thousand votes in Montana swung the other way, had Mark Foley been a more discreet pederast, had Iraq been just not quite that much of disaster, who knows? Maybe, by focusing on those who actually vote (remember, that's only about 40 percent of registered voters, and those voters tend to be the most partisan), the Republican base strategy made things closer than they should have been otherwise.
As for the birth of the new centrism many are proclaiming/hoping for, there is good reason to believe it will be still-born. For one, many of the losers in the election were Republican moderates from the Northeast, like Lincoln Chafee, Nancy Johnson and Rob Simmons. Without them, the Republican Party is likely to move even further right and be even less willing to compromise. And for all Bush's conciliatory talk of bipartisanship, six years of stubborn Democrat-bashing (particularly the over-the-top allusions to Democrats supporting terrorism) are hard to ignore. Moreover, Republicans have every incentive to frustrate Democratic attempts at lawmaking so that, in two years, they can then blame a Democratic Congress for accomplishing nothing; Democrats, meanwhile, will be increasingly tempted to use their investigatory power to make life unpleasant for Republicans, further polarizing the political atmosphere. Though it is true that some of the new Democrats are quite moderate, many of the new Democrats are also quite liberal. And especially in the House, those poised to ascend to committee leadership positions are among the most liberal members.
So, what's changed? In an election in which three in five of registered voters stayed home, Democrats won back the House and Senate by a narrow margin. This changes the balance of power in Washington (a major change, indeed). But it doesn't change that most people still don't vote in mid-term elections and that Democrats continue to vote solidly Democratic, and Republicans continued to vote solidly Republican. If it was a victory for the center, it was most likely only because Republican-leaning independents simply couldn't be bothered to vote this time around. Any claim to a new centrist paradigm rests on a fundamental misunderstanding of voting behavior.
-- Lee Drutman
Online at: http://www.projo.com/opinion/contributors/content/projo_20061124_25drut.2c3cf7e.html
Sunday, September 03, 2006
The quest for a Republican nation -- Los Angeles Times
http://www.calendarlive.com/books/reviews/cl-et-book18aug18,0,7916032.story?coll=cl-books-reviews
BOOK REVIEW
The quest for a Republican nation
One Party Country The Republican Plan for Dominance in the 21st Century Tom Hamburger and Peter Wallsten Wiley: 262 pp., $25.95
By Lee Drutman
Special to The Times
August 18, 2006
IN 2004, Republicans won a clean sweep of the national elections — 232 House seats, 55 Senate seats, 28 governorships and, of course, the presidency, expanding on gains from 2000 and 2002. It's the kind of electoral dominance that could lead a pair of White House reporters to wonder: "[I]s the United States becoming a one-party country?"
Such is the provocative contention of Tom Hamburger and Peter Wallsten's behind-the-curtains exegesis of the Republican plan for perpetual political power — and why it just might be crazy enough to work. "Republicans," they write, "are the New York Yankees of American politics — the team that, at the start of every season, has the tools in place to win it all."
In "One Party Country," the two Los Angeles Times writers trace the GOP's winning strategy to George H.W. Bush's 1992 loss to Bill Clinton, which led Bush's sons George and Jeb to two realizations. One: You can't abandon your base. And two: It's time to start reaching out to minority voters that Democrats are taking for granted.
Soon the Bush brothers were making inroads with African American and Latino voters in Texas and Florida, touting new educational initiatives (market-based, of course!) and test-driving such phrases as "the soft bigotry of low expectations" that somehow make traditional Democratic approaches to social welfare seem even a little racist. By 2000, the outreach had paid off. Jeb Bush already had been elected governor of Florida and George W. Bush won 50% of that state's Latino vote (which is predominantly Cuban American and conservative) and the presidency. The Bush brothers, Hamburger and Wallsten argue, "had profoundly changed the Republican Party's base of support."
With the White House as a base of operations, Bush political advisor Karl Rove then set to work on "a breathtakingly ambitious plan to use the embryonic Bush presidency to build an enduring Republican majority." The first order of business was, well, business. The corporate love-fest began with a big wet sloppy kiss in the form of an immediate two-month freeze on regulation and just kept getting better. Hamburger and Wallsten write that many of the administration's "pro-industry moves attracted little public attention" because they occurred after the Sept. 11 terrorist attacks.
As planned, the business community expressed its thanks in the form of very generous financial support, and GOP operatives used that money to develop a highly sophisticated get-out-the-vote operation built around a top-of-the-line information-management system. Using the "Voter Vault" — which "matched voter files with marketing data obtained from magazine sales, grocery stores, and other retailers" — the Bush team found hidden pockets of supportive swing-state voters, such as an enclave of pro-Israel Orthodox Russian Jews in suburban Cleveland. Republicans also used the consumer data to target military history buffs, bourbon drinkers and Chevy owners, all of whom trend conservative.
Meanwhile, President Bush continued targeting minorities. During the 2004 campaign, many voters with Spanish surnames got a five-minute DVD — "barely noticed outside the Latino community" — in which Bush tried to establish a personal, emotional connection with Latino voters. (A Democratic pollster called it the "I love you" strategy.) Exit polls showed that 40% of Latinos voted for Bush in 2004, up from 35% in 2000.
Bush also devoted special attention to African American church communities that shared his religious and social conservatism (often abetted by government grants through the faith-based initiatives program). Hamburger and Wallsten suggest that a seven-point rise in black support in Ohio may have made the difference for Bush in the pivotal Buckeye State.
The obvious and immediate test of the premise of "One Party Country" will be the November midterm elections. Will Republican efforts to toughen immigration laws destroy the support Bush has gained among Latinos? Will the administration's fumbled response to Hurricane Katrina wash away the inroads the GOP has made among African Americans? And can Republicans keep playing the terrorism card, despite the daily reports of death and disaster in Iraq? (Hamburger and Wallsten have surprisingly little to say about the politics of national security as a potential explanation for recent Republican successes.)
Even if Democrats gain seats this fall, the authors see "few signs that [the] party will be prepared to turn those victories into a winning movement." That's because Republicans still have the solid support of business (and the money that comes with it), the Voter Vault and, perhaps most significant, the structural advantage that comes from years of careful redrawing of congressional district lines. Besides, in the winner-take-all American political system, Republicans need only continue to eke out slim majorities.
For anyone who wants to understand why Republicans are winning elections and why they are likely to do so in the foreseeable future, "One Party Country" is a must read.
Lee Drutman is co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
If you want other stories on this topic, search the Archives at latimes.com/archives.
Article licensing and reprint options
Copyright 2006 Los Angeles Times
BOOK REVIEW
The quest for a Republican nation
One Party Country The Republican Plan for Dominance in the 21st Century Tom Hamburger and Peter Wallsten Wiley: 262 pp., $25.95
By Lee Drutman
Special to The Times
August 18, 2006
IN 2004, Republicans won a clean sweep of the national elections — 232 House seats, 55 Senate seats, 28 governorships and, of course, the presidency, expanding on gains from 2000 and 2002. It's the kind of electoral dominance that could lead a pair of White House reporters to wonder: "[I]s the United States becoming a one-party country?"
Such is the provocative contention of Tom Hamburger and Peter Wallsten's behind-the-curtains exegesis of the Republican plan for perpetual political power — and why it just might be crazy enough to work. "Republicans," they write, "are the New York Yankees of American politics — the team that, at the start of every season, has the tools in place to win it all."
In "One Party Country," the two Los Angeles Times writers trace the GOP's winning strategy to George H.W. Bush's 1992 loss to Bill Clinton, which led Bush's sons George and Jeb to two realizations. One: You can't abandon your base. And two: It's time to start reaching out to minority voters that Democrats are taking for granted.
Soon the Bush brothers were making inroads with African American and Latino voters in Texas and Florida, touting new educational initiatives (market-based, of course!) and test-driving such phrases as "the soft bigotry of low expectations" that somehow make traditional Democratic approaches to social welfare seem even a little racist. By 2000, the outreach had paid off. Jeb Bush already had been elected governor of Florida and George W. Bush won 50% of that state's Latino vote (which is predominantly Cuban American and conservative) and the presidency. The Bush brothers, Hamburger and Wallsten argue, "had profoundly changed the Republican Party's base of support."
With the White House as a base of operations, Bush political advisor Karl Rove then set to work on "a breathtakingly ambitious plan to use the embryonic Bush presidency to build an enduring Republican majority." The first order of business was, well, business. The corporate love-fest began with a big wet sloppy kiss in the form of an immediate two-month freeze on regulation and just kept getting better. Hamburger and Wallsten write that many of the administration's "pro-industry moves attracted little public attention" because they occurred after the Sept. 11 terrorist attacks.
As planned, the business community expressed its thanks in the form of very generous financial support, and GOP operatives used that money to develop a highly sophisticated get-out-the-vote operation built around a top-of-the-line information-management system. Using the "Voter Vault" — which "matched voter files with marketing data obtained from magazine sales, grocery stores, and other retailers" — the Bush team found hidden pockets of supportive swing-state voters, such as an enclave of pro-Israel Orthodox Russian Jews in suburban Cleveland. Republicans also used the consumer data to target military history buffs, bourbon drinkers and Chevy owners, all of whom trend conservative.
Meanwhile, President Bush continued targeting minorities. During the 2004 campaign, many voters with Spanish surnames got a five-minute DVD — "barely noticed outside the Latino community" — in which Bush tried to establish a personal, emotional connection with Latino voters. (A Democratic pollster called it the "I love you" strategy.) Exit polls showed that 40% of Latinos voted for Bush in 2004, up from 35% in 2000.
Bush also devoted special attention to African American church communities that shared his religious and social conservatism (often abetted by government grants through the faith-based initiatives program). Hamburger and Wallsten suggest that a seven-point rise in black support in Ohio may have made the difference for Bush in the pivotal Buckeye State.
The obvious and immediate test of the premise of "One Party Country" will be the November midterm elections. Will Republican efforts to toughen immigration laws destroy the support Bush has gained among Latinos? Will the administration's fumbled response to Hurricane Katrina wash away the inroads the GOP has made among African Americans? And can Republicans keep playing the terrorism card, despite the daily reports of death and disaster in Iraq? (Hamburger and Wallsten have surprisingly little to say about the politics of national security as a potential explanation for recent Republican successes.)
Even if Democrats gain seats this fall, the authors see "few signs that [the] party will be prepared to turn those victories into a winning movement." That's because Republicans still have the solid support of business (and the money that comes with it), the Voter Vault and, perhaps most significant, the structural advantage that comes from years of careful redrawing of congressional district lines. Besides, in the winner-take-all American political system, Republicans need only continue to eke out slim majorities.
For anyone who wants to understand why Republicans are winning elections and why they are likely to do so in the foreseeable future, "One Party Country" is a must read.
Lee Drutman is co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
If you want other stories on this topic, search the Archives at latimes.com/archives.
Article licensing and reprint options
Copyright 2006 Los Angeles Times
Executive bacchanalia -- Providence Journal/Scripps Howard News
http://www.scrippsnews.com/node/11552
Executive bacchanalia
Business & Economy | Business & Technology
By LEE DRUTMAN
Recently, the Securities and Exchange Commission finally got around to approving new executive-pay rules. The new rules (the first in 15 years) come as concern about the latest flabbergasting fiasco of executive chutzpah _ the backdating of stock-option grants _ continues to metastasize.
Under the new pay rules, corporate proxy statements will come with a "Compensation Discussion and Analysis" section, which will explain and justify executive-compensation levels to investors _ unless, of course, the company begs out of this requirement by proving that such disclosure would reveal competitive information (a potentially gaping loophole).
The disclosure is meant to prevent companies from burying descriptions of unrestrained executive perks in abstruse legalese in the far corners of financial reports. Investors complained that this practice was confusing and misleading; now, if all goes according to plan, the investors will be able to see not only that executives are earning "a lot," but also that they are earning "even more."
The rules will probably spur innovation. Companies will doubtless discover creative ways to justify giving executives annual compensation of the kind that it would take an average worker several lifetimes to earn. (Big-public-company CEO compensation now stands at about 400 times average-worker pay.)
As for stock-options backdating (the executive pay scandal du jour), companies will now have to document and justify all options grants. Nothing, however, says that justifications have to be convincing. For example, when The Wall Street Journal recently reported that almost 200 companies had taken advantage of post-9/11 stock-market lows to grant top executives millions of stock options, a Black & Decker's spokesman responded: "It did not bother the board that it was at an advantageous strike price, because that helped the retention aspect." Take that, shareholders!
At last count, at least 80 companies were under investigation for backdating: changing the grant date to a time when the company's stock price was lower than the original grant date. (Options sellers get the difference between the stock price on the day of the sale and the stock price on the day of the grant _ so changing the grant date to a lower-stock-price day is an easy way to make more money on option sales.)
As usual, the winners in this scandal are mostly top executives, and the losers are ordinary shareholders. The irony, of course, is that stock options were designed to align the incentives of executives and shareholders, by giving executives a stake in the company's share price. Instead, in an astonishing demonstration of the law of unintended consequences, stock options display the irrepressible ingenuity of avaricious executives and their friendly boards. (Options also played a pre-eminent role in the recent cascade of accounting scandals, giving executives a powerful incentive to artificially inflate earnings and cash out at a stock-market high.)
Indeed, despite all efforts to the contrary, American corporate executives keep coming up with ways to get even richer _ far outdoing their corporate compatriots throughout the developed world. (The United States is an outlier in executive- to worker-compensation ratios, by a factor of 10.)
This month, it's backdating of stock options. Next month: Who knows what fiscal bacchanalia will undermine any sense of fairness and shared enterprise in the corporate economy _ what daring act of clever cupidity will provoke further resentment from the ever-more-beleaguered ranks of working America? But hey, at least with this new requirement for disclosure of executive compensation, we'll know a little more about it.
(Lee Drutman, a California-based writer, is the co-author of "The People's Business: Controlling Corporations and Restoring Democracy," Berrett-Koehler Publishers. E-mail ldrutman(at)gmail.com.
Executive bacchanalia
Business & Economy | Business & Technology
By LEE DRUTMAN
Recently, the Securities and Exchange Commission finally got around to approving new executive-pay rules. The new rules (the first in 15 years) come as concern about the latest flabbergasting fiasco of executive chutzpah _ the backdating of stock-option grants _ continues to metastasize.
Under the new pay rules, corporate proxy statements will come with a "Compensation Discussion and Analysis" section, which will explain and justify executive-compensation levels to investors _ unless, of course, the company begs out of this requirement by proving that such disclosure would reveal competitive information (a potentially gaping loophole).
The disclosure is meant to prevent companies from burying descriptions of unrestrained executive perks in abstruse legalese in the far corners of financial reports. Investors complained that this practice was confusing and misleading; now, if all goes according to plan, the investors will be able to see not only that executives are earning "a lot," but also that they are earning "even more."
The rules will probably spur innovation. Companies will doubtless discover creative ways to justify giving executives annual compensation of the kind that it would take an average worker several lifetimes to earn. (Big-public-company CEO compensation now stands at about 400 times average-worker pay.)
As for stock-options backdating (the executive pay scandal du jour), companies will now have to document and justify all options grants. Nothing, however, says that justifications have to be convincing. For example, when The Wall Street Journal recently reported that almost 200 companies had taken advantage of post-9/11 stock-market lows to grant top executives millions of stock options, a Black & Decker's spokesman responded: "It did not bother the board that it was at an advantageous strike price, because that helped the retention aspect." Take that, shareholders!
At last count, at least 80 companies were under investigation for backdating: changing the grant date to a time when the company's stock price was lower than the original grant date. (Options sellers get the difference between the stock price on the day of the sale and the stock price on the day of the grant _ so changing the grant date to a lower-stock-price day is an easy way to make more money on option sales.)
As usual, the winners in this scandal are mostly top executives, and the losers are ordinary shareholders. The irony, of course, is that stock options were designed to align the incentives of executives and shareholders, by giving executives a stake in the company's share price. Instead, in an astonishing demonstration of the law of unintended consequences, stock options display the irrepressible ingenuity of avaricious executives and their friendly boards. (Options also played a pre-eminent role in the recent cascade of accounting scandals, giving executives a powerful incentive to artificially inflate earnings and cash out at a stock-market high.)
Indeed, despite all efforts to the contrary, American corporate executives keep coming up with ways to get even richer _ far outdoing their corporate compatriots throughout the developed world. (The United States is an outlier in executive- to worker-compensation ratios, by a factor of 10.)
This month, it's backdating of stock options. Next month: Who knows what fiscal bacchanalia will undermine any sense of fairness and shared enterprise in the corporate economy _ what daring act of clever cupidity will provoke further resentment from the ever-more-beleaguered ranks of working America? But hey, at least with this new requirement for disclosure of executive compensation, we'll know a little more about it.
(Lee Drutman, a California-based writer, is the co-author of "The People's Business: Controlling Corporations and Restoring Democracy," Berrett-Koehler Publishers. E-mail ldrutman(at)gmail.com.
Executive Privileges - TomPaine.com
http://www.tompaine.com/articles/2006/08/11/executive_privileges.php
Executive Privileges
Lee Drutman
August 11, 2006
Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
This week, federal prosecutors charged three executives at Comverse Technology Inc. with reaping millions of dollars in illegal profits through fraudulent “backdating” of stock options. The little-known voicemail technology company is now the second to be charged in the rapidly expanding stock options backdating scandal that is starting to garner national attention. If you haven’t heard about it yet, you will soon.
As the scandal continues to unfold, the basic plot line is starting to look achingly familiar. Something to do with companies stacking the deck so that top executives somehow keep drawing all the aces. Something to do with CEOs whose personal greed knows no bounds. Something to do with auditors and lawyers who surely should have known better. Something to do with boards of directors whose inattention (willful or otherwise) knows no sense. Something to do with shareholders who knew nothing and were, once again, easily victimized. And unless something dramatic changes, it’s something that is going to keep happening.
The depressing part of this particular executive compensation card-trick is that actually turns out to be ingeniously simple.
Consider: Say you are the CEO of GloboMegaCorp, and you get 100,000 stock options granted on January 1, when the stock was worth $50. You cash them in six months later, when the stock is now worth $60, and you’ve just made $10 per share (the difference between the $60 on the sell date and the $50 on the grant date). With 100,000 options, that’s $1 million—not bad.
But say you “backdate”—that is, change the grant date—to the previous November, when the company stock hit a low of $40. Now, when you sell your options at $60 a share, you make $2,000,000 instead. Even better.
At last count, 80 companies were facing backdating investigations , though one academic study estimates that the practice may be far more widespread. By the count of Erik Lie at the University of Iowa, 29.2 percent of companies have engaged in some questionable timing of options grants and 13.6 percent of options granted to top executives between 1996 and 2005 were of questionable timing.
But while the stock options backdating fiasco is troubling indeed, most of the cases under investigation happened before Sarbanes-Oxley improved reporting requirements and other recent changes to accounting rules that require companies to count their stock options as expenses. So it’s not that likely to happen again.
Still, what’s important to note is the way these scandals provide yet another example of just how ingenious top executives have become in working the system—and just how helpless we seem to be to stop them.
Between 1993 and 2003, the percentage of company profits going to the top five executives more than doubled, growing from 4.8 percent to 10.3 percent. In 2004, the median Fortune 500 CEO received compensation worth $15 million. At last count, average CEO was earning more than 400 times average worker pay, and more than 800 times the minimum wage. It is worth noting that in almost all other industrialized nations, the average ratio of CEO-to-worker pay is rarely more than 25 to 1.
So, what’s to be done?
First, what’s been done already: Recently, the Securities and Exchange Commission issued new rules on executive compensation. Given that the new rules—the first in 14 years to address executive compensation—attracted 20,000 comments, you might expect that the SEC was proposing something radical. Hardly.
The new rules basically require companies to be more up front about how they are compensating their top executives. So instead of wrapping the details of outrageous retirement packages, use of the corporate jet and country club memberships in a cocoon of dense legalese and scattering throughout corporate financial statements, companies will now be required to provide a “Compensation Discussion and Analysis”—wherein they will explain and justify their executive compensation decisions, including its stock option granting practices. However—in a potentially gaping loophole—companies can beg out of this requirement if they can prove that such disclosure would reveal competitive information.
Problem is, we already know top executives are getting compensated at outrageous levels. We’ve known this for years. And somehow, despite widespread condemnation of this fact by just about everyone—it’s pretty hard to find an apologist these days—executive compensation still somehow continues to rise. Shame is clearly not an issue here! So, now that we have some new rules, maybe we’ll know a little more. But what exactly will that do to curb runaway CEO pay?
In theory, shareholders—armed with this new information—could punish companies that reward their executives too much by selling the stock. But given that numerous studies have conclusively shown absolutely no link between share price performance and CEO pay—plenty of CEOs do quite well during times of declining stock prices—it’s not clear whether even a massive sell-off would have much impact.
And, well, that’s about it. Shareholders could register their displeasure at annual shareholder meetings, but the problem is that the board of directors is almost always selected with the blessing of management. Not to mention that at 75 percent of U.S. companies, the CEO is also the chairman of the board of directors. So such displeasure by mere shareholders will inevitably be met with displeasure that somebody would express such displeasure in the first place.
Shareholders could threaten to vote sycophantic outrageous-pay-approving directors off the board, but the threat would ring hollow for a simple reason. Since management controls access to corporate proxy statements, almost all director elections are run Soviet-style: Managers appoint one slate of candidates, and shareholders can either approve or disapprove. The slate of candidates with the most votes wins.
For years shareholder groups have been arguing that the SEC should require companies to open up their proxy statements to minority shareholder groups, but pro-management groups like the Business Roundtable and the Chamber of Commerce have been able to convince the SEC that this is a bad idea. Unfortunately, until shareholders can somehow hold directors accountable—or vote directly on executive compensation—there will be very little they can do to restrain executive pay.
Barring direct shareholder involvement, the only other possibility is the moral argument against the outrageous excesses of CEO compensation made most recently by Berkshire Hathaway Vice Chairman Charles Munger. A month ago he delivered a blistering rebuke of excessive CEO pay at a keynote speech at the Stanford Law School Directors’ College.
Munger told an audience that included some CEOs that "Corporate compensation in America is offending a lot of people needlessly and it should be fixed. It is really dangerous to have a lot of envy taking sway in the world.”
He added that CEOs "have a duty to the larger civilization to dampen some of this envy and resentment by behaving way more noble than other people and more generous…The CEO has an absolute duty to be an exemplar for the civilization."
Munger’s argument may fall on deaf ears, but ultimately, it may be that the only way for CEO pay to be brought under control is for CEOs themselves to finally say enough—to realize that they do have a moral responsibility as leaders, and to understand that when their pay is such an issue, it breeds resentment among an increasingly harried and squeezed working class, undermining a sense of shared gain and fairness in the economy—a sense that can’t be good for worker productivity. After all, it’s pretty disheartening to know that as an average worker, you would have to work for 400 years (about 10 working lifetimes) to make what the average CEO makes in one year.
As troubling as the stock options backdating scandal seems to be, it is merely one more chapter in an epic tale that shows no sign of ending. While regulators focus on new rules to prevent options backdating, executives are surely coming up with fresh new ways to outdo themselves. Disclosure may provide fodder for anecdotes, but it will change little.
As it stands, there seem to be two ways to bring CEO pay under control—either empower shareholders to hold directors and executives accountable, or somehow convince CEOs they have a moral responsibility to demonstration moderation. Unfortunately, neither seems particularly realistic at this point. It’s starting to seem like things are going to have to get worse before they get better. Problem is, it’s hard to imagine them getting much worse.
Executive Privileges
Lee Drutman
August 11, 2006
Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
This week, federal prosecutors charged three executives at Comverse Technology Inc. with reaping millions of dollars in illegal profits through fraudulent “backdating” of stock options. The little-known voicemail technology company is now the second to be charged in the rapidly expanding stock options backdating scandal that is starting to garner national attention. If you haven’t heard about it yet, you will soon.
As the scandal continues to unfold, the basic plot line is starting to look achingly familiar. Something to do with companies stacking the deck so that top executives somehow keep drawing all the aces. Something to do with CEOs whose personal greed knows no bounds. Something to do with auditors and lawyers who surely should have known better. Something to do with boards of directors whose inattention (willful or otherwise) knows no sense. Something to do with shareholders who knew nothing and were, once again, easily victimized. And unless something dramatic changes, it’s something that is going to keep happening.
The depressing part of this particular executive compensation card-trick is that actually turns out to be ingeniously simple.
Consider: Say you are the CEO of GloboMegaCorp, and you get 100,000 stock options granted on January 1, when the stock was worth $50. You cash them in six months later, when the stock is now worth $60, and you’ve just made $10 per share (the difference between the $60 on the sell date and the $50 on the grant date). With 100,000 options, that’s $1 million—not bad.
But say you “backdate”—that is, change the grant date—to the previous November, when the company stock hit a low of $40. Now, when you sell your options at $60 a share, you make $2,000,000 instead. Even better.
At last count, 80 companies were facing backdating investigations , though one academic study estimates that the practice may be far more widespread. By the count of Erik Lie at the University of Iowa, 29.2 percent of companies have engaged in some questionable timing of options grants and 13.6 percent of options granted to top executives between 1996 and 2005 were of questionable timing.
But while the stock options backdating fiasco is troubling indeed, most of the cases under investigation happened before Sarbanes-Oxley improved reporting requirements and other recent changes to accounting rules that require companies to count their stock options as expenses. So it’s not that likely to happen again.
Still, what’s important to note is the way these scandals provide yet another example of just how ingenious top executives have become in working the system—and just how helpless we seem to be to stop them.
Between 1993 and 2003, the percentage of company profits going to the top five executives more than doubled, growing from 4.8 percent to 10.3 percent. In 2004, the median Fortune 500 CEO received compensation worth $15 million. At last count, average CEO was earning more than 400 times average worker pay, and more than 800 times the minimum wage. It is worth noting that in almost all other industrialized nations, the average ratio of CEO-to-worker pay is rarely more than 25 to 1.
So, what’s to be done?
First, what’s been done already: Recently, the Securities and Exchange Commission issued new rules on executive compensation. Given that the new rules—the first in 14 years to address executive compensation—attracted 20,000 comments, you might expect that the SEC was proposing something radical. Hardly.
The new rules basically require companies to be more up front about how they are compensating their top executives. So instead of wrapping the details of outrageous retirement packages, use of the corporate jet and country club memberships in a cocoon of dense legalese and scattering throughout corporate financial statements, companies will now be required to provide a “Compensation Discussion and Analysis”—wherein they will explain and justify their executive compensation decisions, including its stock option granting practices. However—in a potentially gaping loophole—companies can beg out of this requirement if they can prove that such disclosure would reveal competitive information.
Problem is, we already know top executives are getting compensated at outrageous levels. We’ve known this for years. And somehow, despite widespread condemnation of this fact by just about everyone—it’s pretty hard to find an apologist these days—executive compensation still somehow continues to rise. Shame is clearly not an issue here! So, now that we have some new rules, maybe we’ll know a little more. But what exactly will that do to curb runaway CEO pay?
In theory, shareholders—armed with this new information—could punish companies that reward their executives too much by selling the stock. But given that numerous studies have conclusively shown absolutely no link between share price performance and CEO pay—plenty of CEOs do quite well during times of declining stock prices—it’s not clear whether even a massive sell-off would have much impact.
And, well, that’s about it. Shareholders could register their displeasure at annual shareholder meetings, but the problem is that the board of directors is almost always selected with the blessing of management. Not to mention that at 75 percent of U.S. companies, the CEO is also the chairman of the board of directors. So such displeasure by mere shareholders will inevitably be met with displeasure that somebody would express such displeasure in the first place.
Shareholders could threaten to vote sycophantic outrageous-pay-approving directors off the board, but the threat would ring hollow for a simple reason. Since management controls access to corporate proxy statements, almost all director elections are run Soviet-style: Managers appoint one slate of candidates, and shareholders can either approve or disapprove. The slate of candidates with the most votes wins.
For years shareholder groups have been arguing that the SEC should require companies to open up their proxy statements to minority shareholder groups, but pro-management groups like the Business Roundtable and the Chamber of Commerce have been able to convince the SEC that this is a bad idea. Unfortunately, until shareholders can somehow hold directors accountable—or vote directly on executive compensation—there will be very little they can do to restrain executive pay.
Barring direct shareholder involvement, the only other possibility is the moral argument against the outrageous excesses of CEO compensation made most recently by Berkshire Hathaway Vice Chairman Charles Munger. A month ago he delivered a blistering rebuke of excessive CEO pay at a keynote speech at the Stanford Law School Directors’ College.
Munger told an audience that included some CEOs that "Corporate compensation in America is offending a lot of people needlessly and it should be fixed. It is really dangerous to have a lot of envy taking sway in the world.”
He added that CEOs "have a duty to the larger civilization to dampen some of this envy and resentment by behaving way more noble than other people and more generous…The CEO has an absolute duty to be an exemplar for the civilization."
Munger’s argument may fall on deaf ears, but ultimately, it may be that the only way for CEO pay to be brought under control is for CEOs themselves to finally say enough—to realize that they do have a moral responsibility as leaders, and to understand that when their pay is such an issue, it breeds resentment among an increasingly harried and squeezed working class, undermining a sense of shared gain and fairness in the economy—a sense that can’t be good for worker productivity. After all, it’s pretty disheartening to know that as an average worker, you would have to work for 400 years (about 10 working lifetimes) to make what the average CEO makes in one year.
As troubling as the stock options backdating scandal seems to be, it is merely one more chapter in an epic tale that shows no sign of ending. While regulators focus on new rules to prevent options backdating, executives are surely coming up with fresh new ways to outdo themselves. Disclosure may provide fodder for anecdotes, but it will change little.
As it stands, there seem to be two ways to bring CEO pay under control—either empower shareholders to hold directors and executives accountable, or somehow convince CEOs they have a moral responsibility to demonstration moderation. Unfortunately, neither seems particularly realistic at this point. It’s starting to seem like things are going to have to get worse before they get better. Problem is, it’s hard to imagine them getting much worse.
Reality behind the 'Net-neutrality' debate - Providence Journal
Lee Drutman: Reality behind the 'Net-neutrality' debate
01:00 AM EDT on Tuesday, August 29, 2006
BERKELEY, Calif.
IN RECENT MONTHS, there has been an increasing amount of excitement in Washington, D.C., about something called "Net neutrality." If one is to believe the frenetic rhetoric on both sides, the future viability of the Internet depends on either enacting it or not enacting it.
If only it were that simple. And if only somebody would talk about the real threat to the viability of the Internet.
The current debate dates back to last November, when AT&T's impolitic chairman, Ed Whitacre, complained that Internet content providers should be paying more. "They use my lines for free -- and that's bull," he told Business Week. "For a Google or a Yahoo or a Vonage or anybody to expect to use these pipes for free is nuts!" Needless to say, the content providers were taken aback.
The argument of Internet service providers (ISPs) like AT&T has since become a little more nuanced. They say that the time has come to invest in a faster Internet, but to do so they need to be sure that they can recoup the costs. And they want to do this by charging content providers more for guaranteed fast delivery, since, after all, they're the ones taking up the bulk of the bandwidth with their streaming video and whatnot.
Not surprisingly, the top content providers (Google, Yahoo, Amazon, etc.) don't like this one mega-bit. Neither does the blogosphere or online groups like MoveOn.org, that live and die by the Internet. They say it amounts to discrimination. What makes the Internet free and beloved, they argue, is that it's neutral: Anybody can put up a Web site. But once you let service providers charge for priority delivery, who knows what favoritism and gouging may ensue?
Hence "Net neutrality," a proposed legislative fix to prohibit service providers from establishing the multi-tiered Internet they seek, and to protect against potential content discrimination.
So far, the ISPs (who argue that any such regulation will stifle investment and is entirely unnecessary because they have no plans to discriminate) are winning in Washington. Net neutrality has been voted down on the House floor and failed to make it out of a Senate committee, partly because the telecoms have spent a lot more money lobbying the issue and have lots of support from Republicans, who happen to be in the majority (whereas content providers have won support only largely among Democrats). But Net neutrality does seem to be gaining momentum.
So who's right? First off, telecom companies are correct in noting that Internet service in the U.S. is in dire need of investment. We rank 16th in the world in both broadband penetration and in broadband growth. The U.S. is rapidly falling behind its competitors in Asia and Europe, and given the importance of technology in the 21st-Century economy, this should be an enormous economic-competitiveness issue. For example, American Internet users pay 10 to 25 times more per megabit than our Japanese counterparts.
As it turns out, we have no national policy to promote broadband growth. In fact, we are the only industrialized country without one. And why should that be? Well, perhaps it's because the telecom giants like AT&T like things just the way they are, with almost no competition, and they spend hundreds of millions of dollars a year lobbying to keep things this way. According a recent Governmment Accountability Office report, the median number of high-speed Internet providers available to a given household is two. No wonder Internet service is so expensive and bad.
But how did Japan, which actually was behind the U.S. in broadband service as recently as 2001, get so far ahead? Well, the Japanese government decided that high-speed Internet was a national priority and did something about it -- the country's telecommunications ministry made the sector very competitive through careful regulation (forcing regional telephone companies to open up their lines to competition, something big telecoms in the U.S. have fought tooth and nail). The ministry also used targeted subsidies to stimulate investment.
Were our government to develop and implement a real broadband policy and actually foster competition (as opposed to letting current oligopoly essentially write its own rules), Net neutrality would be less of an issue. Companies who huffed and puffed about how they ought to be able to externalize their costs would be blown away by competitors who instead just went ahead and innovated. And any service provider that threatened discrimination would quickly find its customers going elsewhere.
Both sides in the Net-neutrality debate claim that the viability of the Internet in America is at stake. In that, they are both correct. Too bad nobody is talking about the real reason why this is even an issue in the first place: the fact that instead of joining the rest of the industrialized world and developing a real broadband policy that includes actual competition, our government remains all too happy to let large telecoms enjoy all the benefits of oligopoly -- while forcing the rest of us to bear all the attendant costs.
Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy. He may be reached by e-mail at ldrutman@gmail.com.
Online at: http://www.projo.com/opinion/contributors/content/projo_20060829_ctlee.31ed540.html
01:00 AM EDT on Tuesday, August 29, 2006
BERKELEY, Calif.
IN RECENT MONTHS, there has been an increasing amount of excitement in Washington, D.C., about something called "Net neutrality." If one is to believe the frenetic rhetoric on both sides, the future viability of the Internet depends on either enacting it or not enacting it.
If only it were that simple. And if only somebody would talk about the real threat to the viability of the Internet.
The current debate dates back to last November, when AT&T's impolitic chairman, Ed Whitacre, complained that Internet content providers should be paying more. "They use my lines for free -- and that's bull," he told Business Week. "For a Google or a Yahoo or a Vonage or anybody to expect to use these pipes for free is nuts!" Needless to say, the content providers were taken aback.
The argument of Internet service providers (ISPs) like AT&T has since become a little more nuanced. They say that the time has come to invest in a faster Internet, but to do so they need to be sure that they can recoup the costs. And they want to do this by charging content providers more for guaranteed fast delivery, since, after all, they're the ones taking up the bulk of the bandwidth with their streaming video and whatnot.
Not surprisingly, the top content providers (Google, Yahoo, Amazon, etc.) don't like this one mega-bit. Neither does the blogosphere or online groups like MoveOn.org, that live and die by the Internet. They say it amounts to discrimination. What makes the Internet free and beloved, they argue, is that it's neutral: Anybody can put up a Web site. But once you let service providers charge for priority delivery, who knows what favoritism and gouging may ensue?
Hence "Net neutrality," a proposed legislative fix to prohibit service providers from establishing the multi-tiered Internet they seek, and to protect against potential content discrimination.
So far, the ISPs (who argue that any such regulation will stifle investment and is entirely unnecessary because they have no plans to discriminate) are winning in Washington. Net neutrality has been voted down on the House floor and failed to make it out of a Senate committee, partly because the telecoms have spent a lot more money lobbying the issue and have lots of support from Republicans, who happen to be in the majority (whereas content providers have won support only largely among Democrats). But Net neutrality does seem to be gaining momentum.
So who's right? First off, telecom companies are correct in noting that Internet service in the U.S. is in dire need of investment. We rank 16th in the world in both broadband penetration and in broadband growth. The U.S. is rapidly falling behind its competitors in Asia and Europe, and given the importance of technology in the 21st-Century economy, this should be an enormous economic-competitiveness issue. For example, American Internet users pay 10 to 25 times more per megabit than our Japanese counterparts.
As it turns out, we have no national policy to promote broadband growth. In fact, we are the only industrialized country without one. And why should that be? Well, perhaps it's because the telecom giants like AT&T like things just the way they are, with almost no competition, and they spend hundreds of millions of dollars a year lobbying to keep things this way. According a recent Governmment Accountability Office report, the median number of high-speed Internet providers available to a given household is two. No wonder Internet service is so expensive and bad.
But how did Japan, which actually was behind the U.S. in broadband service as recently as 2001, get so far ahead? Well, the Japanese government decided that high-speed Internet was a national priority and did something about it -- the country's telecommunications ministry made the sector very competitive through careful regulation (forcing regional telephone companies to open up their lines to competition, something big telecoms in the U.S. have fought tooth and nail). The ministry also used targeted subsidies to stimulate investment.
Were our government to develop and implement a real broadband policy and actually foster competition (as opposed to letting current oligopoly essentially write its own rules), Net neutrality would be less of an issue. Companies who huffed and puffed about how they ought to be able to externalize their costs would be blown away by competitors who instead just went ahead and innovated. And any service provider that threatened discrimination would quickly find its customers going elsewhere.
Both sides in the Net-neutrality debate claim that the viability of the Internet in America is at stake. In that, they are both correct. Too bad nobody is talking about the real reason why this is even an issue in the first place: the fact that instead of joining the rest of the industrialized world and developing a real broadband policy that includes actual competition, our government remains all too happy to let large telecoms enjoy all the benefits of oligopoly -- while forcing the rest of us to bear all the attendant costs.
Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy. He may be reached by e-mail at ldrutman@gmail.com.
Online at: http://www.projo.com/opinion/contributors/content/projo_20060829_ctlee.31ed540.html
Monday, July 03, 2006
The rhetoric and the research all target Bush -- the jokes too -- LA TIMES
http://www.calendarlive.com/books/reviews/cl-et-book3jul03,0,846283.story?coll=cl-books-reviews
BOOK REVIEW
The rhetoric and the research all target Bush -- the jokes too
Armed Madhouse Greg Palast Dutton: 368 pp., $25.95 Playing President My Close Encounters With Nixon, Carter, Bush I, Reagan, and Clinton — and How They Did Not Prepare Me for George W. Bush Robert Scheer
By Lee Drutman
Special to The Times
July 3, 2006
GREG PALAST begins, " 'So Osama walks into this bar, see? … and Bush says, "Whad'l'ya have, pardner?" and Osama says….' "
With that, and a tongue-firmly-in-cheek aside that "security is no joking matter," Palast is off and running into the world of "Armed Madhouse," taking readers headlong on a tragicomic, picaresque ride of war-for-oil foreign policy and war-on-the-poor domestic policy, of Bush Republicans who, although savvy enough to systematically disenfranchise minority voters in two national elections, nevertheless demonstrate remarkable ineptitude in actual governance.
Palast, a tough-talking, fedora-wearing corporate fraud investigator turned intrepid journalist, has a habit for finding actual documents and then using them in edgy exposés for BBC's "Newsnight" and the Guardian newspapers in Britain (though too edgy, it would appear, for American audiences). "You want something heartwarming … ?" Palast warns. "Buy a puppy. But if you want just the facts, ma'am — facts rarely cuddly or cute — here's your book."
As crusading reporter-narrator, Palast is salty and likable, especially when confronting harebrained apologists and flacks who, here, are always up to no good. For example, in the lead-up to the 2004 election, Palast stumbles upon a file sent out by the Republican National Committee called CAGING.XLS. Turns out, it's a list of voters in poor African American neighborhoods in Florida. "Why would the campaign chiefs want that?" Palast asks rhetorically. In Tallahassee, he confronts Republican Party spokesman Joseph Agostini, who tells him it's actually a list of potential donors. "Do you get a lot of major donors from poor, African-American neighborhoods?" Palast asks.
The list, Palast tells us, is a challenge list, part of what he describes as a Republican strategy to disenfranchise poor minority (read: Democratic) voters, thus helping to ensure a Bush victory. In New Mexico, which Bush won by 5,988 votes in 2004, Palast uncovers 21,084 ballots with no vote registered for president, 89% of which just happen to come from nonwhite voters. In closely contested Ohio, Palast finds that a remarkable 14.4% of votes in predominantly black Cleveland precincts were "spoiled" versus 1.6% of votes in predominantly white precincts. A Freedom of Information Act request for voting-machine backup logs in Columbus, Ohio, gets a very suspicious reply: "The backup tapes have been destroyed so as not to conflict with the official tally and create confusion."
Palast is also hot on the trail of why we went to war in Iraq. "There are kooks and cranks and conspiracy nuts out there who think George Bush, from the moment he took office, had some kind of secret plan to invade Iraq and grab control of its oil," writes Palast. "They're wrong. There were two plans. I've got them both."
What Palast labels "Plan A" and "Plan B" are two of the many policy reports that were floating around Washington prior to the invasion of Iraq. Plan A, drafted soon after Bush's election in 2000, "under the weighty aegis" of a joint task force on strategic energy policy of the James A. Baker III Institute and the Council on Foreign Relations, argued that Saddam Hussein was having a "destabilizing influence" on the oil markets (much to the displeasure of major oil companies). The solution: Put Iraqi oil in trusted, stabilizing American hands.
Plan B, also drafted before the war, came from the Heritage Foundation, "the madrassa of neo-con fundamentalism," and called for rampant privatization of natural resources in Iraq, including oil — logic being that if privatized and free from OPEC controls, Iraqi oil fields would produce enough black gold to effectively undermine OPEC and, hence, Saudi Arabia. Problem is, the supposed patron saints of Plans A and B (the State Department and the Pentagon, respectively) just can't seem to get along over there.
Sure, Palast will admit he's a "conspiracy nut." But even if you don't always buy his Bush-and-company-are-destroying-America-and-the-world shtick, you've at least got to give him credit for trying to track down some actual evidence — and for serving up a droll diet of waggish one-liners (like the one about Pat Robertson's difficulties with the separation of "church and hate").
Robert Scheer's "Playing President," by contrast, lacks that zing. Scheer, who was a longtime national correspondent and columnist for the Los Angeles Times, has assembled a collection of his profiles and interviews covering all the presidents from Nixon to Clinton, as well as a selection of his columns over the last decade. The (very) loose thread here appears to be using history and context to show that George W. Bush is the least qualified, most incompetent president Scheer has witnessed. "As opposed to those who preceded him to the highest office in the land," Scheer writes, "Bush affected a deliberate air of diffidence from an early age … interpreting each challenge in turn as more of a bother than an obligation." Yup, that would appear to be the rap on him.
No doubt, Scheer is a hard-hitting interviewer (he's the guy that got Carter to utter the "committed adultery in my heart" line in a Playboy interview), and his lengthy profiles nicely tease out some compelling complexities in running for and being president. Problem is, the book feels thrown together, a series of historical documents in search of an excuse to be reprinted.
If you are a fan of Scheer or simply want to revisit Carter's foreign policy stances in 1976 or Bush I's churlishness in 1980, great. But those looking for a fresh argument or a cohesive narrative are probably better off elsewhere.
Lee Drutman is the co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
BOOK REVIEW
The rhetoric and the research all target Bush -- the jokes too
Armed Madhouse Greg Palast Dutton: 368 pp., $25.95 Playing President My Close Encounters With Nixon, Carter, Bush I, Reagan, and Clinton — and How They Did Not Prepare Me for George W. Bush Robert Scheer
By Lee Drutman
Special to The Times
July 3, 2006
GREG PALAST begins, " 'So Osama walks into this bar, see? … and Bush says, "Whad'l'ya have, pardner?" and Osama says….' "
With that, and a tongue-firmly-in-cheek aside that "security is no joking matter," Palast is off and running into the world of "Armed Madhouse," taking readers headlong on a tragicomic, picaresque ride of war-for-oil foreign policy and war-on-the-poor domestic policy, of Bush Republicans who, although savvy enough to systematically disenfranchise minority voters in two national elections, nevertheless demonstrate remarkable ineptitude in actual governance.
Palast, a tough-talking, fedora-wearing corporate fraud investigator turned intrepid journalist, has a habit for finding actual documents and then using them in edgy exposés for BBC's "Newsnight" and the Guardian newspapers in Britain (though too edgy, it would appear, for American audiences). "You want something heartwarming … ?" Palast warns. "Buy a puppy. But if you want just the facts, ma'am — facts rarely cuddly or cute — here's your book."
As crusading reporter-narrator, Palast is salty and likable, especially when confronting harebrained apologists and flacks who, here, are always up to no good. For example, in the lead-up to the 2004 election, Palast stumbles upon a file sent out by the Republican National Committee called CAGING.XLS. Turns out, it's a list of voters in poor African American neighborhoods in Florida. "Why would the campaign chiefs want that?" Palast asks rhetorically. In Tallahassee, he confronts Republican Party spokesman Joseph Agostini, who tells him it's actually a list of potential donors. "Do you get a lot of major donors from poor, African-American neighborhoods?" Palast asks.
The list, Palast tells us, is a challenge list, part of what he describes as a Republican strategy to disenfranchise poor minority (read: Democratic) voters, thus helping to ensure a Bush victory. In New Mexico, which Bush won by 5,988 votes in 2004, Palast uncovers 21,084 ballots with no vote registered for president, 89% of which just happen to come from nonwhite voters. In closely contested Ohio, Palast finds that a remarkable 14.4% of votes in predominantly black Cleveland precincts were "spoiled" versus 1.6% of votes in predominantly white precincts. A Freedom of Information Act request for voting-machine backup logs in Columbus, Ohio, gets a very suspicious reply: "The backup tapes have been destroyed so as not to conflict with the official tally and create confusion."
Palast is also hot on the trail of why we went to war in Iraq. "There are kooks and cranks and conspiracy nuts out there who think George Bush, from the moment he took office, had some kind of secret plan to invade Iraq and grab control of its oil," writes Palast. "They're wrong. There were two plans. I've got them both."
What Palast labels "Plan A" and "Plan B" are two of the many policy reports that were floating around Washington prior to the invasion of Iraq. Plan A, drafted soon after Bush's election in 2000, "under the weighty aegis" of a joint task force on strategic energy policy of the James A. Baker III Institute and the Council on Foreign Relations, argued that Saddam Hussein was having a "destabilizing influence" on the oil markets (much to the displeasure of major oil companies). The solution: Put Iraqi oil in trusted, stabilizing American hands.
Plan B, also drafted before the war, came from the Heritage Foundation, "the madrassa of neo-con fundamentalism," and called for rampant privatization of natural resources in Iraq, including oil — logic being that if privatized and free from OPEC controls, Iraqi oil fields would produce enough black gold to effectively undermine OPEC and, hence, Saudi Arabia. Problem is, the supposed patron saints of Plans A and B (the State Department and the Pentagon, respectively) just can't seem to get along over there.
Sure, Palast will admit he's a "conspiracy nut." But even if you don't always buy his Bush-and-company-are-destroying-America-and-the-world shtick, you've at least got to give him credit for trying to track down some actual evidence — and for serving up a droll diet of waggish one-liners (like the one about Pat Robertson's difficulties with the separation of "church and hate").
Robert Scheer's "Playing President," by contrast, lacks that zing. Scheer, who was a longtime national correspondent and columnist for the Los Angeles Times, has assembled a collection of his profiles and interviews covering all the presidents from Nixon to Clinton, as well as a selection of his columns over the last decade. The (very) loose thread here appears to be using history and context to show that George W. Bush is the least qualified, most incompetent president Scheer has witnessed. "As opposed to those who preceded him to the highest office in the land," Scheer writes, "Bush affected a deliberate air of diffidence from an early age … interpreting each challenge in turn as more of a bother than an obligation." Yup, that would appear to be the rap on him.
No doubt, Scheer is a hard-hitting interviewer (he's the guy that got Carter to utter the "committed adultery in my heart" line in a Playboy interview), and his lengthy profiles nicely tease out some compelling complexities in running for and being president. Problem is, the book feels thrown together, a series of historical documents in search of an excuse to be reprinted.
If you are a fan of Scheer or simply want to revisit Carter's foreign policy stances in 1976 or Bush I's churlishness in 1980, great. But those looking for a fresh argument or a cohesive narrative are probably better off elsewhere.
Lee Drutman is the co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
Tuesday, May 30, 2006
Power to the people with a political takeover plan - Los Angeles Times
BOOK REVIEW
Power to the people with a political takeover plan
Crashing the Gate Netroots, Grassroots, and the Rise of People-Powered Politics Jerome Armstrong and Markos Moulitsas Zúniga Chelsea Green: 198 pp., $25
By Lee Drutman
Special to The Times
May 30, 2006
IN a given week, Markos Moulitsas Zúniga's progressive blog, Daily Kos, receives more than 3 million visits, making it one of the most widely read political blogs in the world, and earning its proprietor regular calls for advice from Democratic Party leaders. Not bad for somebody who just four years ago was a Silicon Valley dropout with no real political experience. Now Moulitsas, along with fellow blogger Jerome Armstrong of MyDD.com (the DD stands for "Direct Democracy"), has put down some thoughts in a more traditional medium — a book.
In "Crashing the Gate," the two are not shy about what they hope to accomplish: nothing but an all-out "people-powered" takeover of the Democratic Party — which, they are firmly convinced, is the only way to take America back from the conservatives currently ruining it. "To paraphrase Thomas Jefferson," they write, "the tree of a political party must be refreshed from time to time with the blood of reformers and insiders." So begins a chapter titled "Civil War."
Armstrong and Moulitsas are indeed relentless in their hatred for the "fat, lazy, and corrupt" entrenched class of Democratic insiders, whom they blame for just about all of the party's failures. A special ring of hell is reserved for the hapless Democratic Party consultants, who not only keep losing, but also get very rich in the process because they work off commissions. "Call it a cash cow, an incestuous circle … the point is, there is no accountability and the system rewards networking and schmoozing skills in D.C., not performance and results in elections."
The bloggers are also fed up with their party's shrill single-issue groups, who just don't seem to understand the meaning of the word "coalition." "So it's not a stretch," they write, "for demagogic Republicans to paint Democrats as a loose collection of selfish people who are fanatical about their specific cause and have no larger concerns — for the economy, the military, or the country." All this, they argue, makes it hard for Democrats to develop their "elevator pitch," that clear message that will resonate with voters. But Armstrong and Moulitsas argue the grass-roots online community that frequents their ilk of sites (a community tagged the "netroots" by Armstrong back in 2002) is above all that infighting. The "netroots activist," they write, is "fiercely multi-issue, and focused on building a broader movement."
Though the old Democratic establishment can do no right in their eyes, Armstrong and Moulitsas gush with envy at what Republican strategists have achieved. President Bush's top political advisor, Karl Rove, comes across as smarter than God (and able to leap tall buildings in a single thought!). Oh, to have the sophisticated ground operation of the GOP ("four times more accurate than … traditional direct mail, phone banks, and door-to-door canvassing"). To have their emotion-tweaking political advertising, their massive think-tank/media/talk radio echo chamber, their big-tent approach to keeping rival factions in line, their capacity to nurture their young, even their command of ideas: "[W]hat conservatives have built over the past thirty years is nothing short of brilliant. We can admire it the way we would admire the precision, engineering, and craftsmanship of a stealth fighter." The amazing thing, then, is that Democrats are competitive at all. But Armstrong and Moulitsas take heart here, because it "means that despite the massive advantages of the right-wing machine and their hundreds of millions of dollars, we are still the party of the people."
Like Rove, Armstrong and Moulitsas come across as heavily focused on winning, evincing only minimal interest in actual policy. They offer some helpful lessons from state-level Democratic revivals (Colorado: build coalitions; Montana: ignore interest groups except for the NRA; Virginia: target rural communities). But mostly they diagnose and dissect the national Democrats' stubbornly persistent ineptitudes. Though such critiques are valuable and well documented here, the authors' remedy — a bloody takeover of the party by progressive "riffraff like us" — seems like the easy-to-make outsiders' claim that "we could do it better" rather than a revolutionary plan for success.
"Crashing the Gate" is brash and infuriating, as it should be. The progressive blogosphere is starting to feel its own strength — in the continued growth of Web traffic, in its powerful fund-raising capacity, and in the rise of its man, Howard Dean, as Democratic National Committee chairman. As Eli Pariser of Moveon.org's political action wing wrote in December 2004 (after helping to raise a few hundred million dollars online): "Now it's our party: we bought it, we own it, and we're going to take it back." "Crashing the Gate" is a powerful salvo in that battle. And as such, it commands attention.
Lee Drutman is the co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
http://www.calendarlive.com/books/reviews/cl-et-book30may30,0,7653886.story?coll=cl-books-reviews
Power to the people with a political takeover plan
Crashing the Gate Netroots, Grassroots, and the Rise of People-Powered Politics Jerome Armstrong and Markos Moulitsas Zúniga Chelsea Green: 198 pp., $25
By Lee Drutman
Special to The Times
May 30, 2006
IN a given week, Markos Moulitsas Zúniga's progressive blog, Daily Kos, receives more than 3 million visits, making it one of the most widely read political blogs in the world, and earning its proprietor regular calls for advice from Democratic Party leaders. Not bad for somebody who just four years ago was a Silicon Valley dropout with no real political experience. Now Moulitsas, along with fellow blogger Jerome Armstrong of MyDD.com (the DD stands for "Direct Democracy"), has put down some thoughts in a more traditional medium — a book.
In "Crashing the Gate," the two are not shy about what they hope to accomplish: nothing but an all-out "people-powered" takeover of the Democratic Party — which, they are firmly convinced, is the only way to take America back from the conservatives currently ruining it. "To paraphrase Thomas Jefferson," they write, "the tree of a political party must be refreshed from time to time with the blood of reformers and insiders." So begins a chapter titled "Civil War."
Armstrong and Moulitsas are indeed relentless in their hatred for the "fat, lazy, and corrupt" entrenched class of Democratic insiders, whom they blame for just about all of the party's failures. A special ring of hell is reserved for the hapless Democratic Party consultants, who not only keep losing, but also get very rich in the process because they work off commissions. "Call it a cash cow, an incestuous circle … the point is, there is no accountability and the system rewards networking and schmoozing skills in D.C., not performance and results in elections."
The bloggers are also fed up with their party's shrill single-issue groups, who just don't seem to understand the meaning of the word "coalition." "So it's not a stretch," they write, "for demagogic Republicans to paint Democrats as a loose collection of selfish people who are fanatical about their specific cause and have no larger concerns — for the economy, the military, or the country." All this, they argue, makes it hard for Democrats to develop their "elevator pitch," that clear message that will resonate with voters. But Armstrong and Moulitsas argue the grass-roots online community that frequents their ilk of sites (a community tagged the "netroots" by Armstrong back in 2002) is above all that infighting. The "netroots activist," they write, is "fiercely multi-issue, and focused on building a broader movement."
Though the old Democratic establishment can do no right in their eyes, Armstrong and Moulitsas gush with envy at what Republican strategists have achieved. President Bush's top political advisor, Karl Rove, comes across as smarter than God (and able to leap tall buildings in a single thought!). Oh, to have the sophisticated ground operation of the GOP ("four times more accurate than … traditional direct mail, phone banks, and door-to-door canvassing"). To have their emotion-tweaking political advertising, their massive think-tank/media/talk radio echo chamber, their big-tent approach to keeping rival factions in line, their capacity to nurture their young, even their command of ideas: "[W]hat conservatives have built over the past thirty years is nothing short of brilliant. We can admire it the way we would admire the precision, engineering, and craftsmanship of a stealth fighter." The amazing thing, then, is that Democrats are competitive at all. But Armstrong and Moulitsas take heart here, because it "means that despite the massive advantages of the right-wing machine and their hundreds of millions of dollars, we are still the party of the people."
Like Rove, Armstrong and Moulitsas come across as heavily focused on winning, evincing only minimal interest in actual policy. They offer some helpful lessons from state-level Democratic revivals (Colorado: build coalitions; Montana: ignore interest groups except for the NRA; Virginia: target rural communities). But mostly they diagnose and dissect the national Democrats' stubbornly persistent ineptitudes. Though such critiques are valuable and well documented here, the authors' remedy — a bloody takeover of the party by progressive "riffraff like us" — seems like the easy-to-make outsiders' claim that "we could do it better" rather than a revolutionary plan for success.
"Crashing the Gate" is brash and infuriating, as it should be. The progressive blogosphere is starting to feel its own strength — in the continued growth of Web traffic, in its powerful fund-raising capacity, and in the rise of its man, Howard Dean, as Democratic National Committee chairman. As Eli Pariser of Moveon.org's political action wing wrote in December 2004 (after helping to raise a few hundred million dollars online): "Now it's our party: we bought it, we own it, and we're going to take it back." "Crashing the Gate" is a powerful salvo in that battle. And as such, it commands attention.
Lee Drutman is the co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
http://www.calendarlive.com/books/reviews/cl-et-book30may30,0,7653886.story?coll=cl-books-reviews
Monday, May 22, 2006
Beyond Halliburton - TomPaine.com
Beyond Halliburton
Lee Drutman
May 22, 2006
Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
In the weeks following Hurricane Katrina, there was much hue and cry about the massive no-bid “cost-plus” cleanup and rebuilding contracts going to politically-connected firms like Bechtel, Fluor and CH2M Hill.
And sure enough, eight months later, the first audits are in and it is that same old depressing reel of fraud and waste and mismanagement. According to a recently released memo by Rep. Henry Waxman, D.-Calif.:
The documents disclose widespread mismanagement, waste and fraud in contracts worth billions of dollars. The documents reveal a host of major problems that occurred in numerous locations under multiple contracts over a period of many months.
We’re talking about double-billing for hauling the same debris, hauling extra debris to boost reimbursements, overstating mileage—the same old tricks. As a neat touch, inspectors found that Army Corps of Engineers officials had an “informal agreement” not to challenge bills that exceeded estimates by 50 percent.
So why is this storyline so achingly familiar? Politically well-connected company gets massive no-bid contract to do re-construction work in New Orleans, Iraq, Afghanistan—wherever. Without any real accountability, said contractor runs up excessive costs for taxpayers. Sometimes the public gets upset; sometimes a wrist gets slapped. But in the end nothing changes.
It is certainly tempting to blame it on cronyism. Dick Cheney rewarding Halliburton. George W. Bush, the ultimate CEO president, doing all this to help his corporate friends.
Sure, our leaders may have certain personal sympathies. But to think they are doing this all to help out a few friends gives them too much credit. More importantly, it ignores the structural reasons why all this contracting out is bound to fail, no matter who is in charge and what their sympathies are. After all, let’s not forget that back in 2000 (under Clinton), a GAO study of Kellogg, Brown and Root’s $2.2 billion contract in the Balkans concluded that U.S. Army officials “frequently have simply accepted the level of services the contractor provided without questioning whether they could be provided more efficiently or less frequently at lower cost."
To understand why contractor fraud keeps happening over and over again, it’s worth thinking about why some folks thought contracting out for services was such a good idea in the first place. Think back to the 1990s, when Bill Clinton and Al Gore talked proudly about “reinventing government”—tapping into the supposed efficiencies of the private sector, cutting out the supposed inefficiencies of the public bureaucracy (Clinton and Gore eliminated 426,200 federal civilian workforce jobs).
The argument then and today is that turning to the private sector harnesses the power of competitive markets. Since companies must compete for contracts, this competition should discipline them into using taxpayer money more efficiently, especially compared to the dreaded government bureaucracy.
So why hasn’t this worked?
The first reason is that contracting out requires monitoring—and monitoring requires actual people. Over and over again, reports of contractor fraud find at best minimal oversight. The ideological turn that “reinvented” the public sector to favor private contracting has severely limited government’s oversight capacity. No wonder New Orleans is the land of contractors gone wild—FEMA lacks the resources to keep contractors in line.
The second, and related, reason for the failure of private contracting is that when it comes to certain services and products (say, building military bases), there is no real competition. There are only a few firms capable of doing this work, and there is only one buyer—the U.S. government (in economic terms, having only one buyer is a monopsony).
Imagine for a second that you owned a company that specialized in building military bases. Would you put your energy into providing the best service at the best price? Or would you put your energy into securing friends in the government—your one and only customer? There is a simple reason that all of the major contractors are politically well-connected—they have to be to stay in business. It’s the same reason that Mitchell J. Wade handed Randy “Duke” Cunningham $2.4 million in bribes. Without Cunningham’s help in securing defense contracts, Mitchell’s MZM Inc. wouldn’t have much of a business model.
Add up the two, and you have an explanation for why contractor fraud is rampant. Government agencies, made lean by a turn towards privatization and promises of “reinventing government,” don’t have the capacity to effectively monitor contractors. And the market forces that are supposed to discipline private contractors don’t work. Any contractor with any sense is going to develop political connections to get around these market forces. In most cases there is only one buyer and only a few sellers.
Perhaps its time to stop blaming cronyism and instead take a good hard look at the underlying policies that make it possible for such cronyism and profiteering to run rampant in the first place.
One approach might be to establish an independent commission to study the overall effects of contracting out. Were we to seriously re-assess the whole policy of private contracting, we would probably learn that in many cases, it actually costs more to contract out. It’s hard to imagine that an expanded U.S. military force would have done a worse job in Iraq than Halliburton. In other cases, such as unexpected disasters that call for sudden expanded capacity, it may still make sense to contract out, but agencies that do contract out should be properly equipped to monitor the contractors and be empowered to hold them accountable.
But until we thoroughly study the issue, we won’t know. Instead we’ll keep wasting taxpayer money on a policy that has demonstrated a remarkable capacity to generate waste, fraud and abuse.
http://www.tompaine.com/articles/2006/05/22/beyond_halliburton.php
Lee Drutman
May 22, 2006
Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
In the weeks following Hurricane Katrina, there was much hue and cry about the massive no-bid “cost-plus” cleanup and rebuilding contracts going to politically-connected firms like Bechtel, Fluor and CH2M Hill.
And sure enough, eight months later, the first audits are in and it is that same old depressing reel of fraud and waste and mismanagement. According to a recently released memo by Rep. Henry Waxman, D.-Calif.:
The documents disclose widespread mismanagement, waste and fraud in contracts worth billions of dollars. The documents reveal a host of major problems that occurred in numerous locations under multiple contracts over a period of many months.
We’re talking about double-billing for hauling the same debris, hauling extra debris to boost reimbursements, overstating mileage—the same old tricks. As a neat touch, inspectors found that Army Corps of Engineers officials had an “informal agreement” not to challenge bills that exceeded estimates by 50 percent.
So why is this storyline so achingly familiar? Politically well-connected company gets massive no-bid contract to do re-construction work in New Orleans, Iraq, Afghanistan—wherever. Without any real accountability, said contractor runs up excessive costs for taxpayers. Sometimes the public gets upset; sometimes a wrist gets slapped. But in the end nothing changes.
It is certainly tempting to blame it on cronyism. Dick Cheney rewarding Halliburton. George W. Bush, the ultimate CEO president, doing all this to help his corporate friends.
Sure, our leaders may have certain personal sympathies. But to think they are doing this all to help out a few friends gives them too much credit. More importantly, it ignores the structural reasons why all this contracting out is bound to fail, no matter who is in charge and what their sympathies are. After all, let’s not forget that back in 2000 (under Clinton), a GAO study of Kellogg, Brown and Root’s $2.2 billion contract in the Balkans concluded that U.S. Army officials “frequently have simply accepted the level of services the contractor provided without questioning whether they could be provided more efficiently or less frequently at lower cost."
To understand why contractor fraud keeps happening over and over again, it’s worth thinking about why some folks thought contracting out for services was such a good idea in the first place. Think back to the 1990s, when Bill Clinton and Al Gore talked proudly about “reinventing government”—tapping into the supposed efficiencies of the private sector, cutting out the supposed inefficiencies of the public bureaucracy (Clinton and Gore eliminated 426,200 federal civilian workforce jobs).
The argument then and today is that turning to the private sector harnesses the power of competitive markets. Since companies must compete for contracts, this competition should discipline them into using taxpayer money more efficiently, especially compared to the dreaded government bureaucracy.
So why hasn’t this worked?
The first reason is that contracting out requires monitoring—and monitoring requires actual people. Over and over again, reports of contractor fraud find at best minimal oversight. The ideological turn that “reinvented” the public sector to favor private contracting has severely limited government’s oversight capacity. No wonder New Orleans is the land of contractors gone wild—FEMA lacks the resources to keep contractors in line.
The second, and related, reason for the failure of private contracting is that when it comes to certain services and products (say, building military bases), there is no real competition. There are only a few firms capable of doing this work, and there is only one buyer—the U.S. government (in economic terms, having only one buyer is a monopsony).
Imagine for a second that you owned a company that specialized in building military bases. Would you put your energy into providing the best service at the best price? Or would you put your energy into securing friends in the government—your one and only customer? There is a simple reason that all of the major contractors are politically well-connected—they have to be to stay in business. It’s the same reason that Mitchell J. Wade handed Randy “Duke” Cunningham $2.4 million in bribes. Without Cunningham’s help in securing defense contracts, Mitchell’s MZM Inc. wouldn’t have much of a business model.
Add up the two, and you have an explanation for why contractor fraud is rampant. Government agencies, made lean by a turn towards privatization and promises of “reinventing government,” don’t have the capacity to effectively monitor contractors. And the market forces that are supposed to discipline private contractors don’t work. Any contractor with any sense is going to develop political connections to get around these market forces. In most cases there is only one buyer and only a few sellers.
Perhaps its time to stop blaming cronyism and instead take a good hard look at the underlying policies that make it possible for such cronyism and profiteering to run rampant in the first place.
One approach might be to establish an independent commission to study the overall effects of contracting out. Were we to seriously re-assess the whole policy of private contracting, we would probably learn that in many cases, it actually costs more to contract out. It’s hard to imagine that an expanded U.S. military force would have done a worse job in Iraq than Halliburton. In other cases, such as unexpected disasters that call for sudden expanded capacity, it may still make sense to contract out, but agencies that do contract out should be properly equipped to monitor the contractors and be empowered to hold them accountable.
But until we thoroughly study the issue, we won’t know. Instead we’ll keep wasting taxpayer money on a policy that has demonstrated a remarkable capacity to generate waste, fraud and abuse.
http://www.tompaine.com/articles/2006/05/22/beyond_halliburton.php
Friday, May 19, 2006
Lee Drutman: The real two-tiered Internet problem
01:00 AM EDT on Friday, May 19, 2006
BERKELEY, Calif.
UP TILL NOW, the Internet has mostly been an anything-goes world, largely free of both content discrimination and regulatory oversight. But recently, Internet-service providers (ISPs), such as AT&T and Verizon, have made rumblings that they would like to charge high-intensity content providers, such as Google, a little extra, to ensure the speediest content delivery. Such fees are necessary, say the ISPs, to help finance a faster Internet for everyone.
Unfair, say such heavily trafficked content providers as Google, Yahoo, Amazon.com and eBay, which would be asked to pay more. If the Verizons of the world demand a shakedown for faster service, pretty soon the competitive, free-flowing Internet we know and love will start to disappear. Instead of individual users' voting with their clicks, ISPs will be picking the winners and losers, with their tolls.
The proposed solution is "net neutrality," a legislative measure to ensure that Internet-service providers do not create a two-tiered Internet that gives preference to some content over others, by creating a fast lane for content providers that want to pay and a slow lane for those that don't. Supporters of this approach, mostly Democrats, are trying to get a net-neutrality provision into a major telecommunication bill moving forward in Congress. So far, they've been unsuccessful, but the battle is far from over.
The Internet-service providers are fighting hard, and understandably. They've set up a phony grassroots campaign, "Hands off our Internet," which makes the usual anti-regulation arguments: The Internet has worked well without government regulation. The service providers have never discriminated and have no plans to do so. Besides, even if they did, and consumers were unhappy, the market would discipline such errant behavior. And isn't it actually fairer to force bandwidth hogs to pay more, instead of making everyone pay the same, regardless of use? And so on.
Such conservative heavyweights as Grover Norquist's Americans for Tax Reform are sending out action alerts to help the cause.
In favor of net neutrality, a coalition called Save the Internet now boasts more than 500 members and more than 600,000 signers of the petition "Don't Let Congress Ruin the Internet." The powerhouse liberal group MoveOn also has an online petition: "Internet providers like AT&T and Verizon are lobbying Congress hard to gut Network Neutrality, the Internet's First Amendment and the key to Internet freedom. Many members of Congress take campaign contributions from these companies."
But don't members of Congress also take contributions from companies such as Yahoo and Microsoft? And wasn't MoveOn founded by a bunch of Silicon Valley folks? Come to think of it, why are advocacy groups jumping into this issue? And why is it such a partisan issue? It couldn't be that Democrats and liberal advocacy groups are now carrying water for the Googles and eBays of the world, while Republicans and conservative advocacy groups are carrying water for the Verizons and Comcasts of the world -- could it?
Concerns on both sides are probably overstated, whipped up by the corporations with much at stake. Sure, we don't want Comcast deciding which Web sites load and which Web sites don't; but how exactly will letting the Internet-service providers charge the heaviest users a little extra for speedy delivery shut out smaller sites, whose servers probably can't keep up with top speed anyway? Nor does it seem convincing that a little regulation is going to stifle investment in the Internet. Either way, it's likely to be the consumers who pay most of the bill.
Meanwhile, lots of more pressing Internet issues are not getting debated. There's little talk, for example, of how to ensure that affordable broadband service reaches into every home -- even though a recent survey by the International Telecommunications Union found that the United States ranked 16th globally in broadband penetration. Nor is there real discussion about U.S. consumers' paying more for worseInternet service than do consumers in many other industrial nations (Japan, for instance, has widely accessible "high-speed" broadband that is 16 times faster than that in the United States, for only $22 a month.)
And while no one has yet had to pay for priority service on the Internet, the issue remains very real in Congress. Since 1998, AT&T, Verizon, Comcast, and Time Warner have spent a combined $230.9 million on lobbying and campaign contributions. During the same period, Amazon, eBay, Google, Yahoo and Microsoft have spent a combined $71.2 million on such efforts. No wonder this is such a hotly contested issue.
It's true that a two-tiered system could create discrimination, and on that ground, net neutrality is probably good policy. But the bigger problem these days is the two-tiered system of access in Washington.
Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy, Berrett-Koehler Publishers (ldrutman@gmail.com).
http://www.projo.com/opinion/contributors/content/projo_20060519_19drut.21b5bb85.html
Thursday, April 27, 2006
Worse than window dressing - Providence Journal
Lee Drutman: Worse than window dressing
Providence Journal
Thursday, April 27, 2006
Today the U.S. House is expected to take up the lobbying- and ethics-reform bill that has been in the works since the Jack Abramoff scandal first broke. If all goes according to GOP-leadership plan, House members will approve legislation so ineffectual as to be almost a parody of itself. Then, behind closed doors, House-Senate conferees will hash out the differences between that bill and a slightly (only slightly) better Senate version; President Bush will sign it into law; andvoila! Members can return to their districts and say they've taken care of lobbying reform.
The problem is that the process so far illustrates exactly the kind of congressional disingenuousness that makes 80 percent of Americans think that bribery and other corruption are widespread in Washington. For example, for all the talk of need for transparency and openness in government, House GOP leadership is expected to bring the lobbying-reform bill to the floor in a way that would limit debate and prevent members from offering any amendments.
The House bill itself, meanwhile, is a masterpiece of subterfuge. It promises to ban privately funded travel -- but the ban expires in December. It requires lobbyists to disclose fundraising events -- but then defines fundraising events so narrowly (only events specifically billed "to honor" a member of Congress) as to render the provision meaningless. About all the House bill does is slightly increase disclosure of lobbying activities and "earmarks" in spending bills.
That this will only tell us more about what we already know is a colossal problem. It is as if a doctor attending to a dying heart-attack patient recommended another round of tests, instead of life-saving surgery.
Common Cause President Chellie Pingree, who called the Senate bill "largely window dressing," has rightly tabbed the House version "worse than window dressing." At least the Senate bill has some provisions to increase disclosure of fake "grassroots" lobbying, and mandates a two-year "cooling-off" period between a Capitol Hill or White House job and a lobbying job, instead of the current one year.
Neither bill, however, would create an independent ethics-oversight committee, which good-government types have been calling the most important reform, on the premise that if you ask members to police themselves, you get the broken ethics-oversight process we have now. Nor does either bill make any attempt to limit the amount of private money in campaigns -- which is what gives the lobbyists much of their influence. Turn to full public funding of elections (as some, including Rep. Barney Frank [D.-Mass.] and David Obey [D.-Wis.], have proposed), and suddenly members of Congress would surely feel much less obligated to sit down with every lobbyist who comes a-knocking.
Asking Congress to pass lobbying and ethics reform is a difficult task. Most members probably don't think of themselves as unethical people, and would no doubt bristle at the suggestion that they could be bought off for a steak dinner or a ride on a corporate jet. (House Majority Leader John Boehner [R.-Ohio], for example, called a private-travel ban "childish.") But what matters is not the specific trips or meals or fundraisers, but the aggregate: that too many lawmakers let themselves -- often without thinking -- become constantly surrounded by lobbyists, because there is so much lobbyists can and do provide for them.
Perhaps the House will suddenly get religion and approve something resembling meaningful lobbying reform. More likely, though, Sen. John McCain (R.-Ariz.) will have been proven right when, after approval of the Senate bill, he proclaimed: "The good news is there will be more indictments, and we will be revisiting this issue."
http://www.projo.com/opinion/contributors/content/projo_20060427_27drut.f07bfca.html
Providence Journal
Thursday, April 27, 2006
Today the U.S. House is expected to take up the lobbying- and ethics-reform bill that has been in the works since the Jack Abramoff scandal first broke. If all goes according to GOP-leadership plan, House members will approve legislation so ineffectual as to be almost a parody of itself. Then, behind closed doors, House-Senate conferees will hash out the differences between that bill and a slightly (only slightly) better Senate version; President Bush will sign it into law; andvoila! Members can return to their districts and say they've taken care of lobbying reform.
The problem is that the process so far illustrates exactly the kind of congressional disingenuousness that makes 80 percent of Americans think that bribery and other corruption are widespread in Washington. For example, for all the talk of need for transparency and openness in government, House GOP leadership is expected to bring the lobbying-reform bill to the floor in a way that would limit debate and prevent members from offering any amendments.
The House bill itself, meanwhile, is a masterpiece of subterfuge. It promises to ban privately funded travel -- but the ban expires in December. It requires lobbyists to disclose fundraising events -- but then defines fundraising events so narrowly (only events specifically billed "to honor" a member of Congress) as to render the provision meaningless. About all the House bill does is slightly increase disclosure of lobbying activities and "earmarks" in spending bills.
That this will only tell us more about what we already know is a colossal problem. It is as if a doctor attending to a dying heart-attack patient recommended another round of tests, instead of life-saving surgery.
Common Cause President Chellie Pingree, who called the Senate bill "largely window dressing," has rightly tabbed the House version "worse than window dressing." At least the Senate bill has some provisions to increase disclosure of fake "grassroots" lobbying, and mandates a two-year "cooling-off" period between a Capitol Hill or White House job and a lobbying job, instead of the current one year.
Neither bill, however, would create an independent ethics-oversight committee, which good-government types have been calling the most important reform, on the premise that if you ask members to police themselves, you get the broken ethics-oversight process we have now. Nor does either bill make any attempt to limit the amount of private money in campaigns -- which is what gives the lobbyists much of their influence. Turn to full public funding of elections (as some, including Rep. Barney Frank [D.-Mass.] and David Obey [D.-Wis.], have proposed), and suddenly members of Congress would surely feel much less obligated to sit down with every lobbyist who comes a-knocking.
Asking Congress to pass lobbying and ethics reform is a difficult task. Most members probably don't think of themselves as unethical people, and would no doubt bristle at the suggestion that they could be bought off for a steak dinner or a ride on a corporate jet. (House Majority Leader John Boehner [R.-Ohio], for example, called a private-travel ban "childish.") But what matters is not the specific trips or meals or fundraisers, but the aggregate: that too many lawmakers let themselves -- often without thinking -- become constantly surrounded by lobbyists, because there is so much lobbyists can and do provide for them.
Perhaps the House will suddenly get religion and approve something resembling meaningful lobbying reform. More likely, though, Sen. John McCain (R.-Ariz.) will have been proven right when, after approval of the Senate bill, he proclaimed: "The good news is there will be more indictments, and we will be revisiting this issue."
http://www.projo.com/opinion/contributors/content/projo_20060427_27drut.f07bfca.html
Thursday, April 13, 2006
The Enron Standard - TomPaine.com
The Enron Standard
Lee Drutman
April 13, 2006
TomPaine.com
Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
In a Houston courtroom this week, former Enron CEO Jeffrey Skilling took the witness stand to plead his innocence, telling jurors that “My life is on the line.”
The blockbuster Enron trial is far from over, and things are not looking up for Skilling and Enron founder Kenneth Lay, both of whom could face 25 years in prison if convicted on fraud charges. Government prosecutors presented 22 witnesses over 32 days, building a solid case that Skilling and Lay knew full well that Enron’s finances amounted to house of cards build on a foundation of fraud, yet continued to make bold (and untruthful, hence illegal) proclamations about the company’s financial health.
Such a painstaking prosecution has been four years and millions of dollars in the making, and has ensnared more than a dozen co-conspirators along the way. And while it is heartening to see what government prosecutors are capable of when they set their minds to it, Enron represents a mere drop in the bucket in the wide world of corporate crime.
When it comes to government follow-through in punishing corporate crime, Enron is a true shining star. Unfortunately, the rest of the universe is rather dim—particularly when it comes to crimes where the victims don’t happen to be wealthy investors. Consider a recent Associated Press report that studied how well government agencies were doing in collecting fines levied on white-collar and corporate criminals. The AP’s answer, in short? Not well at all.
According to the report, the federal government is now owed $35 billion in fines—five times the amount that went uncollected 10 years ago, and enough to fund the entire Department of Homeland Security for a year. According to a Government Accountability Office (GAO) report, in cases involving white-collar and corporate criminals, on average just 7 percent of the initial fine actually gets paid.
The report makes for depressing reading. Case after case of government agencies making big public charades over big fines, only to later cut those penalties dramatically—or not bother to collect them at all.
There is, for example, the story of the gasoline company that paid only 8 percent of an original $3 million fine after an explosion killed three young people. There are the nuclear labs let off the hook after a $2.5 million fine was imposed for exposing workers to radiation, and the coal companies allowed to walk after being fined $1.3 million for deaths and injuries to miners. Company after company, it seems, is being told that there are no penalties for their actions.
Quite a contrast to the zeal that prosecutors have demonstrated in going after Enron.
Now, I would not for a moment suggest that federal prosecutors should not be pursuing the Enron case with all the force in the world. Enron remains one of the most spectacular corporate frauds ever, and to let the folks who cooked it up off the hook would be a travesty of justice.
But at the same time, I also think it’s important to take a step back and remember what it is that Lay and Skilling are being prosecuted for. They are being prosecuted for bluffing about the financial health of their company—which allowed them to make off with millions by selling their stock high while unwitting investors were left holding the bag.
This is a serious crime, and it is true that many Enron employees had their whole pensions in Enron stock and subsequently lost everything. But it is also true that the roughly half of the stock out there is owned by the wealthiest 1 percent of Americans. As far as classes of victims go, investors tend to be a pretty privileged class.
Perhaps, then, it is not surprising that the face of “corporate crime” has come to be defined largely by Enron, WorldCom and other cases of accounting fraud where the victims are primarily wealthy investors. Nor should it seem surprising that corporate reform and corporate accountability is still largely discussed in reference to the Sarbanes-Oxley Act, which dealt almost exclusively with curbing accounting fraud. After all, investors are a pretty powerful political class.
Yes, financial fraud is a serious crime; and yes, reforms are needed and violators ought to be pursued with the full force of the law. But all this must not distract us from the fact that when the victims are not wealthy investors, the same force of response is often lacking.
Consider the Sago mining disaster, which claimed the lives of 12 miners on January 2. The event drew plenty of media attention for a little while, and plenty of disapproval was heaped on the mine’s owners, which, as it turned out, had been given many “serious and substantial” violations in the past (though never with serious fines to match). But almost three months later, the prospects of actual improvements in mine safety regulation now seem dim.
Workplace safety is an ongoing problem, and not just in mines. According to Bureau of Labor Statistics, more than 5,500 workers are killed on the job each year (an average of 15 per day), and another 4.7 million suffer serious injuries.
As the AP report reminds us, most corporate criminals are still given kid-gloves treatment. Sure, financial fraud now gets punished with almost as much force as an under-funded Justice Department white-collar unit can muster—as it should. But when it comes to issues like the environment, health and safety, it seems that the Justice Department seems content to let companies pretty much do as they like.
http://www.tompaine.com/articles/2006/04/13/the_enron_standard.php
Lee Drutman
April 13, 2006
TomPaine.com
Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
In a Houston courtroom this week, former Enron CEO Jeffrey Skilling took the witness stand to plead his innocence, telling jurors that “My life is on the line.”
The blockbuster Enron trial is far from over, and things are not looking up for Skilling and Enron founder Kenneth Lay, both of whom could face 25 years in prison if convicted on fraud charges. Government prosecutors presented 22 witnesses over 32 days, building a solid case that Skilling and Lay knew full well that Enron’s finances amounted to house of cards build on a foundation of fraud, yet continued to make bold (and untruthful, hence illegal) proclamations about the company’s financial health.
Such a painstaking prosecution has been four years and millions of dollars in the making, and has ensnared more than a dozen co-conspirators along the way. And while it is heartening to see what government prosecutors are capable of when they set their minds to it, Enron represents a mere drop in the bucket in the wide world of corporate crime.
When it comes to government follow-through in punishing corporate crime, Enron is a true shining star. Unfortunately, the rest of the universe is rather dim—particularly when it comes to crimes where the victims don’t happen to be wealthy investors. Consider a recent Associated Press report that studied how well government agencies were doing in collecting fines levied on white-collar and corporate criminals. The AP’s answer, in short? Not well at all.
According to the report, the federal government is now owed $35 billion in fines—five times the amount that went uncollected 10 years ago, and enough to fund the entire Department of Homeland Security for a year. According to a Government Accountability Office (GAO) report, in cases involving white-collar and corporate criminals, on average just 7 percent of the initial fine actually gets paid.
The report makes for depressing reading. Case after case of government agencies making big public charades over big fines, only to later cut those penalties dramatically—or not bother to collect them at all.
There is, for example, the story of the gasoline company that paid only 8 percent of an original $3 million fine after an explosion killed three young people. There are the nuclear labs let off the hook after a $2.5 million fine was imposed for exposing workers to radiation, and the coal companies allowed to walk after being fined $1.3 million for deaths and injuries to miners. Company after company, it seems, is being told that there are no penalties for their actions.
Quite a contrast to the zeal that prosecutors have demonstrated in going after Enron.
Now, I would not for a moment suggest that federal prosecutors should not be pursuing the Enron case with all the force in the world. Enron remains one of the most spectacular corporate frauds ever, and to let the folks who cooked it up off the hook would be a travesty of justice.
But at the same time, I also think it’s important to take a step back and remember what it is that Lay and Skilling are being prosecuted for. They are being prosecuted for bluffing about the financial health of their company—which allowed them to make off with millions by selling their stock high while unwitting investors were left holding the bag.
This is a serious crime, and it is true that many Enron employees had their whole pensions in Enron stock and subsequently lost everything. But it is also true that the roughly half of the stock out there is owned by the wealthiest 1 percent of Americans. As far as classes of victims go, investors tend to be a pretty privileged class.
Perhaps, then, it is not surprising that the face of “corporate crime” has come to be defined largely by Enron, WorldCom and other cases of accounting fraud where the victims are primarily wealthy investors. Nor should it seem surprising that corporate reform and corporate accountability is still largely discussed in reference to the Sarbanes-Oxley Act, which dealt almost exclusively with curbing accounting fraud. After all, investors are a pretty powerful political class.
Yes, financial fraud is a serious crime; and yes, reforms are needed and violators ought to be pursued with the full force of the law. But all this must not distract us from the fact that when the victims are not wealthy investors, the same force of response is often lacking.
Consider the Sago mining disaster, which claimed the lives of 12 miners on January 2. The event drew plenty of media attention for a little while, and plenty of disapproval was heaped on the mine’s owners, which, as it turned out, had been given many “serious and substantial” violations in the past (though never with serious fines to match). But almost three months later, the prospects of actual improvements in mine safety regulation now seem dim.
Workplace safety is an ongoing problem, and not just in mines. According to Bureau of Labor Statistics, more than 5,500 workers are killed on the job each year (an average of 15 per day), and another 4.7 million suffer serious injuries.
As the AP report reminds us, most corporate criminals are still given kid-gloves treatment. Sure, financial fraud now gets punished with almost as much force as an under-funded Justice Department white-collar unit can muster—as it should. But when it comes to issues like the environment, health and safety, it seems that the Justice Department seems content to let companies pretty much do as they like.
http://www.tompaine.com/articles/2006/04/13/the_enron_standard.php
Friday, April 07, 2006
The glorious appeals system for the rich - Providence Journal
Lee Drutman: The glorious appeals system for the rich
01:00 AM EDT on Friday, April 7, 2006
THERE IS a wonderful moment in the recently released film Thank You for Smoking in which Nick Naylor, the tobacco-lobbyist protagonist, tackles a question from his son on what makes America the greatest country. Without missing a beat, Naylor replies: "Our endless appeals system."
Another individual who must be feeling pretty good about our endless appeals system is Frank Quattrone, the former Crédit Suisse First Boston technology banker. Quattrone recently learned that if you're willing to spend countless millions on high-priced lawyers and keep fighting (never give up the faith!), sometimes you can get a federal appeals court to take seriously your contention that the previous judge was biased against you and win a third trial.
Quattrone, of course, has always thought big. During the technology bubble, he didn't let himself get bogged down by silly things like price-to-earnings ratios or common sense. No, he was out there handling a record 138 high-tech initial public offerings between 1998 and 2000 (almost as many as the next two competitors combined) and cheerleading a brave new future, in which instead of a sucker born every minute, a sucker would be born every second.
Where others might have had ethical qualms about giving top tech executives hot new share offerings in order to secure their investment-banking business, Quattrone was establishing his "Friends of Frank" program, charting a brave new course in back-scratching cronyism.
Where most top managing directors in investment banking were content to make off with $8 million, maybe $10 million, during the tech bubble, Quattrone sequestered a cool $200 million. And where others might have felt they needed to be extra careful two days after learning about a federal grand-jury investigation, Quattrone boldly sent out an e-mail to his staff telling them to "clean up those files."
It was this fateful e-mail that, almost two years ago, led a jury to convict Quattrone on obstruction-of-justice charges. U.S. District Judge Richard Owen then sentenced Quattrone to 18 months in prison -- which was actually far less than the 25-year maximum he could have faced, and also much less than the 55 months the average convicted burglar spends in prison.
But unlike your run-of-the-mill burglar, big-thinking Frank Quattrone had a few hundred million dollars to use on his defense. And so, immediately after his trial, his lawyers were out there asserting that their client hadn't gotten a fair trial, that the judge had had it in for Quattrone from the start, and that the judge had improperly instructed the jurors, so that they would convict the banker.
Now, almost two years after his conviction (and more than four years since he sent his e-mail), a federal appeals court has agreed that, yes, "jury instructions were erroneous," and, yes, "the interest and appearance of justice are better served by reassignment."
Dreams, it seems, do come true.
It is unclear what will happen next. The federal prosecutors who had brought the case have since gone into private practice. But the Justice Department has already spent thousands of hours and millions of dollars on pursuing the trial, so it seems a shame to give up now.
Still, whatever the Justice Department does, the case ought to highlight just how hard it can be to get a conviction -- even for a lousy 18-month obstruction-of-justice charge -- when you've got a fighting white-collar defendant determined to use every last million to clear his name.
Quattrone's well-funded feistiness is hardly unique. Former WorldCom CEO Bernard Ebbers is appealing his 25-year sentence with all he's got. And former Enron CEO Jeffrey Skilling (now on trial) reportedly spent $23 million on his defense -- roughly 1 percent of the budget of the entire Justice Department -- before his assets were frozen. No doubt, even if Skilling and Enron founder Kenneth Lay (also on trial) are convicted, they, too, will keep asking for justice to be "better served" for as long as they possibly can.
If so, they, like Quattrone, will also be taking full advantage of that wonderful "endless appeals system" that makes America so great -- especially if you have the resources to properly exploit it.
Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy.
http://www.projo.com/opinion/contributors/content/projo_20060407_07drut.e3f0814.html
01:00 AM EDT on Friday, April 7, 2006
THERE IS a wonderful moment in the recently released film Thank You for Smoking in which Nick Naylor, the tobacco-lobbyist protagonist, tackles a question from his son on what makes America the greatest country. Without missing a beat, Naylor replies: "Our endless appeals system."
Another individual who must be feeling pretty good about our endless appeals system is Frank Quattrone, the former Crédit Suisse First Boston technology banker. Quattrone recently learned that if you're willing to spend countless millions on high-priced lawyers and keep fighting (never give up the faith!), sometimes you can get a federal appeals court to take seriously your contention that the previous judge was biased against you and win a third trial.
Quattrone, of course, has always thought big. During the technology bubble, he didn't let himself get bogged down by silly things like price-to-earnings ratios or common sense. No, he was out there handling a record 138 high-tech initial public offerings between 1998 and 2000 (almost as many as the next two competitors combined) and cheerleading a brave new future, in which instead of a sucker born every minute, a sucker would be born every second.
Where others might have had ethical qualms about giving top tech executives hot new share offerings in order to secure their investment-banking business, Quattrone was establishing his "Friends of Frank" program, charting a brave new course in back-scratching cronyism.
Where most top managing directors in investment banking were content to make off with $8 million, maybe $10 million, during the tech bubble, Quattrone sequestered a cool $200 million. And where others might have felt they needed to be extra careful two days after learning about a federal grand-jury investigation, Quattrone boldly sent out an e-mail to his staff telling them to "clean up those files."
It was this fateful e-mail that, almost two years ago, led a jury to convict Quattrone on obstruction-of-justice charges. U.S. District Judge Richard Owen then sentenced Quattrone to 18 months in prison -- which was actually far less than the 25-year maximum he could have faced, and also much less than the 55 months the average convicted burglar spends in prison.
But unlike your run-of-the-mill burglar, big-thinking Frank Quattrone had a few hundred million dollars to use on his defense. And so, immediately after his trial, his lawyers were out there asserting that their client hadn't gotten a fair trial, that the judge had had it in for Quattrone from the start, and that the judge had improperly instructed the jurors, so that they would convict the banker.
Now, almost two years after his conviction (and more than four years since he sent his e-mail), a federal appeals court has agreed that, yes, "jury instructions were erroneous," and, yes, "the interest and appearance of justice are better served by reassignment."
Dreams, it seems, do come true.
It is unclear what will happen next. The federal prosecutors who had brought the case have since gone into private practice. But the Justice Department has already spent thousands of hours and millions of dollars on pursuing the trial, so it seems a shame to give up now.
Still, whatever the Justice Department does, the case ought to highlight just how hard it can be to get a conviction -- even for a lousy 18-month obstruction-of-justice charge -- when you've got a fighting white-collar defendant determined to use every last million to clear his name.
Quattrone's well-funded feistiness is hardly unique. Former WorldCom CEO Bernard Ebbers is appealing his 25-year sentence with all he's got. And former Enron CEO Jeffrey Skilling (now on trial) reportedly spent $23 million on his defense -- roughly 1 percent of the budget of the entire Justice Department -- before his assets were frozen. No doubt, even if Skilling and Enron founder Kenneth Lay (also on trial) are convicted, they, too, will keep asking for justice to be "better served" for as long as they possibly can.
If so, they, like Quattrone, will also be taking full advantage of that wonderful "endless appeals system" that makes America so great -- especially if you have the resources to properly exploit it.
Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy.
http://www.projo.com/opinion/contributors/content/projo_20060407_07drut.e3f0814.html
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