The opposite of one extreme is not the opposite extreme – it’s moderation.
Unfortunately, that axiom seems to have escaped the U.S. business community under the leadership of Tom Donahue and the U.S. Chamber of Commerce. They’re still trying to solve the over-regulation of the 1960s and 70s with the rampant deregulation and self-regulation of the past 20 years.
This simplistic solution has created more problems for the private sector than it has solved, by replacing the benign regulation of an inefficient federal government with the tyranny of immoral competitors. The result is an over-arching dynamic that threatens U.S. global economic leadership.
Time and again the same scenario has played out. In the absence of empowered regulators, entire industries have embarked on an involuntary race to the bottom led by their most unethical members.
We’ve seen it with Countrywide Financial in housing; Rupert Murdoch’s News Corp. in media; Bridgepoint Education in for-profit education; the Law Offices of David Stern in legal services; Enron and Halliburton in energy; Blackwater USA in military contracting; Arthur Andersen LLP in accounting; and Lehman Brothers, Bear Stearns, Merrill Lynch and Bernie Madoff in financial services.
We’re now seeing a similar scenario in national politics, where both major political parties have placed the goal of maximizing campaign donation growth ahead of statesmanship, diplomacy and leadership in Washington, D.C.
Where does it end?
It always ends in a company or industry-wide collapse along the lines of what we’ve just seen in financial services and housing. It has to.
There simply is no way for most mature companies to legitimately grow annual profits by more than 8 percent year after year, any more than there was for Madoff to return annual growth of at least 11 percent to his investors year after year; or for Enron to escape responsibility for the California energy crisis it helped create. The very nature of the profit growth requirement demands that the scams become bigger and bigger and bigger, until they’re no longer sustainable.
Unfortunately, that’s what Wall Street has come to demand. And the result is that legitimate companies like Blockbuster, Boston Market and Research in Motion, the makers of the Blackberry, are literally imploding around us as soon as they reach maturity instead of becoming stable institutions that provide services, goods and employment for 40 or 50 years.
It’s either that, start acting like crooks, or cannibalize your own customers as the cable TV industry has done. The cable companies’ latest scam is to change their own names to avoid getting spanked by the consumers they routinely exploit.
Optimum Online? That’s Cablevision.
Xfinity? That’s Comcast.
They’re not new companies.
Why is this happening in cable?
Because local politicians are taking political donations from the cable providers and municipalities are accepting cable franchise fees from them in exchange for looking the other way. Meanwhile, the citizens they’re supposed to represent are exploited.
The name-change game isn’t limited to cable either. Blackwater is calling itself Xe Services LLC these days. And the Republican far right is now referring to itself as The Tea Party.
Meanwhile, Bridgepoint Education is actually doing business under the “Ashford University” and “The University of the Rockies” brand names.
A dishonorable business leader or company that can’t compete effectively with their peers without cheating is still exactly that, no matter how many times they change their names. Any CEO who is worth half their stock options doesn’t resort to such smoke and mirrors.
In every case the scenario is the same: a company seeks an advantage over the rest of its industry by engaging in behavior its leaders must know is immoral – in some cases overtly illegal – to boost profits. These gains are often made at a great cost to Society.
For example, interest rates in excess of 11 percent were once prohibited by state regulations called usury laws. The banking industry succeeded in undermining those regulations in the early 1980s on an emergency basis. Inflation was running at nearly 18 percent at the time, which prevented banks from lending money profitably if they charged less than 11 percent interest. The move faciltated the 29 percent credit card interest rates that consumers face today.
Of course once the inflation emergency was over, the emergency measures remained in place. The same scenario happened with the “temporary tax breaks” for the rich that were handed out by former President George W. Bush. They remain today, nearly three years after the end of his administration.
Oh, and by the way, inflation is less than 3 percent today, but those emergency credit card rates are still alive and well. They haven’t come down. The wider gap between inflation and interest rates is pure profit for bankers.
The problems created by wholesale deregulation are not just a national phenomenon. They’re creating difficulties at the local level too.
For example, developers in Southwest Florida created a transportation problem in the 1990s by marketing gated communities to safety-conscious retirees from northern cities. Never mind that affluent cities like Naples didn’t have a crime problem and that the gates shunted more cars onto main roads by cutting off secondary roads – they were easy to sell. Developers kept selling them until traffic virtually ground to a halt.
In the absence of proper government regulation, Southwest Florida residents soon found themselves sitting in traffic for hours at a time as they tried to drive across paradise to the beach from their million dollar homes. They also found themselves being shaken awake in the middle of the night by the private jets of executives at companies like HealthSouth because the local Naples Airport Authority was incapable of placing the needs of the many ahead of the selfish desires of a wealthy few.
The simple truth is that business benefits from government regulation. Without it, business implodes and hurts the rest of us in the process.
Our entire economy is imploding right now as decent business leaders like Brian O’Shaughnessy of Revere Copper Products, Inc., are pressured to move their manufacturing operations to China from the U.S. to compete with the treasonous dregs of their respective industries. Meanwhile, the political pundits wonder aloud why we can’t create jobs in the U.S.?
Uhhhh…. Could it because the U.S. Chamber of Commerce and its allies have succeeded in moving so many jobs to other low-wage nations the past 20 years?
Could it be that companies which are incapable of hitting the 8 percent growth requirement via legitimate organic growth, and are madly cutting labor costs to obscure that weakness.
The moral of the story is that the answer to the poorly executed government regulation of the 1960s and 70s is not wholesale deregulation. It’s effective and efficient regulation that places the needs of the many ahead of the predatory schemes of the few.
We’re going to suffer and continue to see our nation’s global standing erode until a new generation of business leaders figures that out.
The current crop is already lost.