For all the talk about corrupt CEOs who betray their stockholders, it’s time we consider the problem of power-mad politicians who betray the voters.
With or without criminal penalties for CEOs, the stock market is brutal in its propensity to punish companies with shady management. What means is there to punish governments with leaders who do everything contrary to what they promised in the election?
In his campaign, Bush promised a humble foreign policy, smaller government, freedom for enterprise, and free trade. In practice, he was been a big-government warmonger who has massively increased the power of the consolidated state and topped it off with brazen protectionism.
From a moral point of view, it is no different from a CEO hired to build a company who then turns to destroy it — a very rare occurrence in a market economy because such behavior is not rewarded. But because there is no market to buy and sell presidents — only the crude, fickle, and vacuous opinion poll — there is no real way to register displeasure and thus very little accountability.
Imagine if the market for CEOs worked like a presidential election. Imagine there were two huge cartels for CEOs called the reds and the blues. Every four years, each team picked one person they deem appropriate to run a company. The stockholders of that company in turn could vote, but the vote would be rigged in such a way that either a red or a blue would always win.
Of course candidate red and candidate blue would be very pleased to say whatever is necessary to get elected as CEO. Once one of them is in power, he knows that he will maintain power until the next election, scheduled four years hence, and, in the meantime, there is nothing that anyone can do to dislodge him from that post. In fact, he has the power to shut up, audit, smear, harass, and even jail anyone who objects too strenuously to the things he does.
What is to keep this CEO from using his position, not to help the company, but to help himself and his friends? In four years, he knows that he can wash his hands of the whole thing. Obviously, this is a prescription for business corruption on a massive scale. Maybe if we christen this system economic democracy and kept it around for 100 years, we would get used to it, but that wouldn’t change the reality.
Of course the analogy is far from exact. Under this system of choosing CEOs, there would be some standard by which to evaluate his performance, stemming from the marketplace. In government, there is no such standard, so the possibilities for corruption are far greater. In fact, we shouldn’t be surprised that government — deprived of all financial incentive for accountability, with no standards of profit or loss, where the goal is to reward your friends, punish your enemies, and grab whatever power you can for yourself while hoping to be rewarded in the history books for having presided over some fabulous domestic and international calamity — would operate like a “jungle in which only the unscrupulous survive,” a power-grabbing “free-for-all guided only by greed.”
But wait a minute! Those are the words that George W. used to describe the market economy that exists today. More precisely, he said this is what the market economy would amount to were it not for the glorious power of the state. We are spared that fate, he says, thanks to his new edict that adds criminal penalties for corporate fraud.
Perhaps it is only a symbolic gesture but it is a powerful one: it seems designed to taint all of business life with the suspicion that criminality and commerce are somehow closely related.
“No boardroom in America is above or beyond the law,” he said, but he might have added that the lawmakers consider themselves above and beyond this law or any law. “Those who deliberately sign their names to deception will be punished,” he said, leaving out that this is precisely what happens every time he signs a budget or a law, or Congress votes.
“In the aftermath of September 11,” Bush said concerning a violent attack on a profit-making center, “we refused to allow fear to undermine our economy and we will not allow fraud to undermine it either…. No more easy money for corporate criminals. Just hard time…. This law says to every dishonest corporate leader, you’ll be exposed and punished. The era of low standards and false profits are over.”
Bush himself brags that the new laws are the “most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt.” It is not a bad analogy. FDR ran on a platform of cutting expenditures by 25 percent, ending deficits, reducing federal salaries, assuring a sound currency, protecting states rights, and keeping the peace. And when he governed, he did exactly the opposite.
FDR’s first inaugural provided the tone for this recent series of Bush speeches. Note how FDR and Bush are highlighting the same alleged problem (corporate corruption), diagnosing the downturn in the same terms (as a loss of confidence in business), and proposing the same solutions (national planning to curb business):
The rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men…. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence…. The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths…. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits.…. There must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing. Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, on unselfish performance; without them it cannot live…. [T]here must be an end to speculation with other people’s money…. Our international trade relations, though vastly important, are in point of time and necessity secondary to the establishment of a sound national economy. This I propose to offer, pledging that the larger purposes will bind upon us all as a sacred obligation with a unity of duty hitherto evoked only in time of armed strife.
FDR was demonizing business for two reasons: to distract from the reality that the growing Great Depression was a complete failure of government, not of the market, and to consolidate power in the US in the same way it was being consolidated in Italy, Germany, and Russia, and with the same rhetoric against the commercial class.
Hitler on the cause of the collapse of the Second Reich, Mein Kampf:
[M]oney became more and more of a God whom all had to serve and bow down to. Heavenly Gods became more and more old-fashioned and were laid away in the corners to make room for the worship of mammon. And thus began a period of utter degeneration which became specially pernicious because it set in at a time when the nation was more than ever in need of an exalted idea, for a critical hour was threatening. Germany should have been prepared to protect with the sword her efforts to win her own daily bread in a peaceful way. Unfortunately, the predominance of money received support and sanction in the very quarter which ought to have been opposed to it…. In practice, however, all ideal virtues became secondary considerations to those of money, for it was clear that having once taken this road, the nobility of the sword would very soon rank second to that of finance…. A serious state of economic disruption was being brought about by the slow elimination of the personal control of vested interests and the gradual transference of the whole economic structure into the hands of joint stock companies…. In this way labour became degraded into an object of speculation in the hands of unscrupulous exploiters. The de-personalization of property ownership increased on a vast scale. Financial exchange circles began to triumph and made slow but sure progress in assuming control of the whole of national life…. The best evidence of how far this u2018commercialization’ of the German nation was able to go can be plainly seen in the fact that when the War was over one of the leading captains of German industry and commerce gave it as his opinion that commerce as such was the only force which could put Germany on its feet again.
Josef Stalin, December 27, 1929:
We could not permit dekulakization as long as we were pursuing the policy of restricting the exploiting tendencies of the kulaks, as long as we were unable to go over to a determined offensive against the kulaks, as long as we were unable to replace the kulak output by the output of the collective farms and state farms. At that time the policy of not permitting dekulakization was necessary and correct. But now? Now things are different. Now we are able to carry on a determined offensive against the kulaks, break their resistance, eliminate them as a class and replace their output by the output of the collective farms and state farms. Now, dekulakization is being carried out by the masses of poor and middle peasants themselves, who are putting complete collectivization into practice. Now, dekulakization in the areas of complete collectivization is no longer just an administrative measure. Now, it is an integral part of the formation and development of the collective farms. Consequently it is now ridiculous and foolish to discourse at length on dekulakization. When the head is off, one does not mourn for the hair. There is another question which seems no less ridiculous: whether the kulaks should be permitted to join the collective farms. Of course not, for they are sworn enemies of the collective-farm movement.
Hitler, Stalin, and FDR eventually got their real armed strife, which solidified their power. The first two are seen today as criminals. But FDR, rather than going down in the annals of history as a criminal betrayer and looter, is treated by historians as the model and ideal of a president, a man who disregarded traditional standards of public service to seize power in a time of national emergency. Every president since has hoped to be so highly regarded by history.
Murray Rothbard argued that the core political struggle is always the same: the great war of power on the market. No dictator in at least a century has failed to demonize the commercial class. Corporations on the front lines of the market side of things often forget what is at stake. But Bush’s unrelenting war on the market reminds us that government never really forgets what is at stake.
It remains true today as it did in fascist Italy, socialist Germany, New Deal America, and socialist Russia: freedom has no greater opponents than those who despise and demonize commercial society. Today, it’s not the money changers but the power-mongers who need to be thrown out of the temple.