Governmental and Economic Systems

This and the other essays on this site meander through a number of related topics. I’ve tried to put them in some kind of order, but they're deeply interrelated, so please bear with me if the discussion rounds back on itself.

(Please also bear in mind that this like the other Essays was mostly written in 2000, when many of the observations expressed were much less widely recognized.)


Free Markets. “Free market” theory takes as its starting point the idea that each person or entity is naturally inclined to pursue her or his own best interests and is better motivated and situated than most other persons or entities (including governments) to figure out just how those interests can best be furthered. The theory then says that in the mix of individuals and entities pursuing these interests, they tend to work things out in the most efficient manner for all. For example, most consumers will consider higher quality and lower prices to be in their best interests, while producers generally should want to surpass their competitors in meeting consumers’ desires while keeping their own costs as low as possible. To this extent, free market theory makes perfect sense and is consistent with systems theory as described in the essay on this website entitled, Cells and Systems.

Free market theory also illustrates an important attribute to be considered in designing any system, which is that if you want the system to work well while minimizing the need for continual maintenance or intervention, you need to structure it so as to take into careful account the natural character and tendencies of the people or entities (i.e., sub-systems) within the system, both so as to take advantage of the benefits of those tendencies and so as to minimize situations in which those tendencies can reasonably be predicted to cause harm. (In this connection, see the essay on this site entitled, Cells and Systems, regarding the concept of dharma and Plato’s definition of justice as the state of affairs obtained when each person or element within a system is assigned that role which it is by its own nature best suited to perform.)

Certain adjunct conditions are necessary in order for free markets to work properly. One is transparency: that, is, consumers must have reasonable access to all information they might want to take into account in making their purchasing decisions, including, for example, information about the product including its contents, performance, safety, methods of manufacture, etc., as well as price and any indirect costs of the product, and also about how all such factors compare to those of competing products. The second necessary adjunct in order for free markets to work is consumer access to competing products; that is, competing products must not be “squeezed out” or made significantly less available because the seller of the more available product has bought out its competitors, or bought up all or most of the distribution capacity or retail shelf space, or engaged in other anti-competitive practices.

Free Markets Are Not a Panacea. Even where transparency and availability of competing products exist, however, unregulated free markets may not work well where individuals or groups are insufficiently motivated or able to protect their own interests for any of a number of reasons, including the following:

(a)The subject-matter may be too difficult or specialized for the average individual to master to the extent needed to make the best decision. E.g., most consumers lack the expertise required to do their own food and drug testing; non-geeks and even many geeks didn’t know enough about computers to realize that Macs were sufficiently superior to PC’s that the greater expense up front would have been more than worth the man-hours wasted in trying to make PC’s work (among others things, Y2K would have been a complete non-event). Another e.g., most bank depositors lack the time and expertise to examine bank finances and practices. And personally, I find it absurd to blame securities investors for losses they suffered through relying on professional analysts’ advice; indeed, many if not most people lack the ability or wherewithal even to identify a good advisor.

(b)The long-term consequences may seem too remote. Most people tend to focus on relatively short-term effects, long-term consequences seeming relatively “unreal”. For example, especially in this age in which corporate leaders come and go every few years, corporations often adopt policies that are profitable in the short run but completely unsustainable in the long run. Other examples: the pain of property taxes in the near-term usually seems more compelling than the prospect of a well-educated work force fifteen or twenty years from now; and we’re reluctant to take action to reduce pollution unless rewarded by a tax credit or other immediate benefit to our bottom line.

(c)Various irrational impulses may interfere with good decision-making. For example, the "it can’t happen to me” syndrome; or, once something traumatically bad does happen to us, the tendency to overestimate the risk that it will happen again or otherwise overreact. And sellers savvy to these tendencies often deliberately use them to manipulate us.

(d)Some individuals or groups may simply lack the capacity, time, or other leverage to fend for their own interests effectively, e.g., children, the mentally disabled. Or again, even if most individuals had the intelligence and expertise needed to analyze corporate financial statements, few people with jobs and children have anywhere near enough time to actually perform many such analyses rather than relying on professionals’ advice.

(e)There are some areas in which, for various reasons, we just don’t want to leave people to duke things out for themselves; e.g., we want the government to catch and punish criminals rather than letting individuals take justice into their own hands, to regulate automobile traffic, etc.

(f)Natural monopolies: some theorists believe there are certain “natural monopolies,” enterprises that can be undertaken on a cost-effective basis only as monopolies or that by nature should be subject to more extensive governmental regulation. As I understand, this was the approach used when the (wire) telephone system and infrastructure were first created; Fannie Mae might be another instance. I for one wish our government had imposed a standard in common with other countries so my cell phone would work in Europe.

Whenever any of the foregoing circumstances prevail, regulation by government or other agencies whose interests are aligned with those of the people for whom protection is needed may be indispensable in order to ensure people aren’t just sitting ducks.

It should be noted that regulation can be of various kinds or structures. E.g., meaningful disclosure of material information can be required instead of imposing specific requirements or standards; or inspection or testing can be imposed at critical points in the supply chain, i.e., in many instances it can be required only at the last point before a product reaches consumers, on the theory that retailers and middlemen will then themselves require that suppliers up the chain provide safe products. Another effective form of regulation is to give consumers the right to sue for an effective remedy from miscreant or negligent suppliers (see the discussion of tort reform in the essay entitled, "Miscellaneous Other Systemic Issues").

As will be discussed further below, in some areas, it will be necessary in addition to build structures into the free market system designed to minimize potentially harmful conflicts of interest and to make sure that checks and balances are provided by qualified agencies whose interests are aligned with those of the constituencies they’re intended to protect.

Just Because You’re a Capitalist Doesn’t Mean You Can’t Be a Dictator. Many people in the U.S. seem confused about the distinction between different economic as distinguished from political systems. We tend to equate “democracy” with “capitalist,” and we tend to equate “socialist” or “communist” with “dictatorial.” These equations are simply incorrect. There are plenty of capitalist states governed by dictatorship, and there are plenty of socialist democracies.

For the record, theoretically, “socialism” is a stage between capitalism and communism. Under socialism, there is a central government whose main function is to protect people, at least some businesses are nationalized, and the economy operates upon the principle, “from each according to their abilities, to each according to their work.” See http://www.etext.org/Politics/MIM/faq/commievssoc.html ; http://www.geocities.com/~johngray . Thus, as I understand, under pure socialism, different people receive different compensation based on the work they do; but no one would receive money merely through, say, inheriting a lot of income-producing assets. Under “communism,” the operating principle is, “from each according to their abilities, to each according to their needs”; all property is owned communally, there is complete economic cooperation, and government is to wither away. See http://www.marxists.org/archive/marx/works/1847/11/prin-com.htm ; http://www127.pair.com/critical/soc-v-com.htm ; http://www.geocities.com/~johngray . The extent to which either communism or socialism accords with a realistic view of human nature is an open issue; but sincere believers must in fairness be recognized as altruists who seek the opposite of tyranny.

Our confusion between economic vs. political systems, however, seems actually to have helped lead the U.S. to support any number of dictatorial tyrants, merely because they were opposed by communists or socialists.

Or again, U.S. leaders often seek to justify their policies as motivated by a desire to "spread democracy," while scrutiny of their actions and actual accomplishments suggests that their real priority is to spread capitalism--more particularly, to open foreign markets to big U.S. corporate enterprises.

If we don’t want to be identified by other countries as a “bad guy,” our actions need to change to better reflect that it is indeed democracy that we value, and not just profits. We undermine our credibility and our effectiveness if we are seen to ally ourselves with tyrants, regardless of their economic persuasion, or to defend victims of aggression only when it suits our capitalist interests.

Just Because You’re Not a Government Doesn’t Mean You Can’t Be a Dictator. I hope it will eventually be more widely recognized more that a megacorporation or other conglomerate can be just as much a dictator as any individual, human tyrant.

Tyranny means reducing people’s choices or freedom to choose for unjust reasons--for reasons such as providing excessive benefits or control to the tyrant at the expense of those tyrannized. Once it becomes apparent that a dictatorship is not working equitably, the dictator must use deception or force in order to maintain power.

Big (or well-financed) companies behave tyrannically to the extent that they seek to win out over their competitors not by providing better or cheaper products--so that a well-informed consumer would naturally prefer those products--but rather by deceiving consumers regarding their or their competitors’ products or by reducing consumers’ opportunities to choose competitors’ products. This can be accomplished in the following ways, among others: (1) lying about their products or withholding material information about them; (2) paying distributors or retailers to distribute or offer the company’s own products exclusively or disproportionately to actual consumer demand; (3) building into the company’s own products incompatibility with other companies’ goods or services; and (4) forcing competitors out of business by means of predatory pricing or buy-outs.

Currently, although U.S. law prohibits flat-out deception of consumers (whether such prohibitions are adequately enforced being another question), it tends to look upon most other anti-competitive practices not only as permissible but as protected “free speech.” For example, the law ignores any rights of consumers to have access to a full range of choices not unduly manipulated by producers trying to give their products an edge they would not have if they had to stand on quality and price alone.

Our founding fathers recognized that, in order to avoid re-creating in the U.S. a tyranny similar to the one they’d just fought the revolution to escape, they should build into our government a system of checks and balances, so that excessive power could not be amassed within any one branch. They did not foresee, however, the extent to which the same danger exists in the economic sphere.

Thomas Pynchon had it right in Gravity’s Rainbow. The world isn’t run by governments; it’s run by corporations (which in turn run the governments, if we let them).

“Free” Markets--Freedom for Consumers, or Suppliers? The film Before Night Falls, directed by Julian Schnabel about the Cuban author, Reinaldo Arenas, contained a passage that stuck with me. “People that make art are dangerous to any dictatorship. We create beauty and beauty is the enemy. Artists are escapists. Artists are [condemned as] 'counter-revolutionary' because there is a man [Castro] that cannot govern the terrain called beauty, so he wants to eliminate it.” (I apologize that I don’t know whether the line was original with the script author or was quoted from Arenas; I found this version, unattributed, on the movie homepage, which as of 1/26/2004 is at http://www.finelinefeatures.com/sites/bnfalls/frameset.html , but which apparently no longer contains the quotation.)

For example, megacorporations now own most of the music, movie, book publishing and other media businesses. They are pursuing every possible means to eliminate the need for creativity or authenticity. They want to be able to crank out hits according to formulae, using musicians, actors, writers or others who can be easily replaced and are happy to take orders, so that they won’t have to deal with unpredictable, idiosyncratic creative talent. They want to be able to control consumers’ awareness of and access to all media, to make us want to buy what they want to sell.

The kind of competition that’s good for consumers is the kind that gives consumers more and better-informed choices. Free markets should mean freedom for suppliers to choose what products they’ll offer and at what price and freedom for consumers to choose what products they’ll buy and at what price. Requiring accurate disclosure of material information is a start. But it may do little good to require a corporation to disclose the hazards or insufficiencies of its product, if no better product can be found on most stores’ shelves because stores make more from distributor kick-backs than they do from product sales. Corporations that try to hinder others from offering or selling competing products or engage in other anti-competitive practices aren’t asking for a free market; they’re asking to be free to destroy the free market for their competitors and for consumers. There is nothing unfair to businesses in structuring markets so as to encourage businesses to focus on providing better products and services at lower prices instead of on eliminating consumer choice. (Consider how businesses react when consumer activists are allowed not just to boycott a company’s products for no reason but to engage in practices that make it impossible even for consumers who wanted to buy the company’s products to do so.) I hope one day we’ll recognize that more carefully-crafted prohibitions and enforcement against anti-competitive practices are necessary in order to create a market that is truly free for consumers.

Anti-Trust Laws Primarily Protect Businesses, Not Consumers. Specifically, anti-trust law focuses on whether allowing a merger or an anti-competitive practice by or between companies would hurt competitor companies. As far as I know, anti-trust law all but ignores the question of whether allowing such merger or practice might diminish the public’s access to an array of products. The law simply assumes that the public’s interests will be indirectly served if certain anti-competitive practices are restricted. But the law does not prohibit monopolies per se (courts have recognized, e.g., that Microsoft holds a monopoly in certain areas); it only prohibits monopolist companies from using their position to hurt competitors. So long as a monopolist can avoid a final court judgment holding that the monopolist acquired or used its position in a manner intended to hurt competitors, consumers’ interests are simply of no account. (Not to mention that winning any such judgment can take years, even decades.)

For reasons similar to the various considerations set out above, we can and should limit excessive consolidation of the ownership of key resources that are by their nature limited in availability (e.g., the airwaves, the internet, energy, fresh water, etc.).

Need for Transparency and Accountability. We need to develop systems to account for all long- and short-term costs and benefits of our decisions and indecisions, including all kinds of direct and indirect taxes, deductions, credits, and subsidies as well as unintended side-effects or hidden costs such as depletion of natural resources, losses due to extreme weather and other effects of global warming, increased costs from deaths and disease due to environmental hazards, lost man-hours due to inefficiencies such as traffic jams, or having to spend countless hours hassling HMO’s for payment, lost productivity due to a poorly-educated labor force, not to mention interest expense, the effects of inflation, lost opportunity costs, etc. A systems theory analogy would be to say that any organism does better if it can reliably monitor and regulate its own functions; e.g., I am probably better off if I have some insight into what I’m eating and how much, and as how it’s likely to affect me, as well as various other matters affecting my life functions.

Our current ways of dealing with such social cost-benefit matters are so complex and opaque that it is extremely difficult to get a handle on even a portion of the economic picture. In many areas, the system is not transparent precisely because the parties interested don’t want it to be. In some instances, such parties may be motivated by perfectly altruistic reasons; e.g., it seems possible to me that a portion of the increase in health care costs since 1980 is related to the AIDS epidemic, and if so, I would not be surprised if the medical community may have preferred to avoid calling attention to that connection, out of a desire to avoid adding fuel to anti-gay fires.

Nonetheless, in many if not most cases, I believe the lack of transparency results at best from mere neglect, or worse, from selfish reasons; and I believe that on the whole, we’d be better off if transparency and accountability were the rule rather than the exception.

Among the types of things for which better accounting is needed:

1.Free or discounted entitlements or benefits--not just programs to help the poor, such as welfare, but also programs in which governments give stuff to corporations for less than full market value. E.g., licenses to use public lands or resources, to graze animals, harvest trees, extract oil and gas or other minerals, to use the public airwaves, etc. As well as the distortions, if any, that arise from them.

2.Taxes, tax deductions, exemptions, tax credits, etc., as well as the distortions, if any, that may arise from them. People complain about the complexity of the federal tax code. Some complexities are “good” in that they arise from making exceptions to general rules to try to reach results that most people agree will be more fair--e.g., deductions for medical expenses above a certain percentage of income. Other causes for complexities are “bad” in that they result from pressures from special interests that most people would not consider fair. In either case, however, these complexities have made it more difficult for people in general to understand what’s going on. It’s quite possible that the tax code is the best place to address many of the concerns that give rise to complexity; but in any event, we need better accounting to fully understand the total, net financial effects not only of the tax code but also the various other governmental and other programs, including administrative costs for adequate enforcement.

3.Hidden costs resulting from allowing activities to proceed unregulated and untaxed, where pollution or depletion can be expected to result from such an activity but will probably not be paid for by the people who profited from it.

4.Hidden costs or lost opportunities that result from failing to invest where the return on the dollar is substantially more than one to one, e.g., in child health care and education (a quick check I just made on the internet found studies showing returns to taxpayers of from 5 to 7 and more dollars for each dollar spent in these areas; see, e.g., http://www.ssa.uchicago.edu/publications/advforum/v3n2 ). I believe the arts to be similarly profitable (albeit, unfortunately, not to most artists).

5.Costs having to do with wasted TIME. All business executives know that time is money. I assume, for example, that businesses have saved a lot of money by replacing human switchboard operators with automated telephone menu systems. The hidden cost is that, while it may be fine for me if people who want something from my business can be dealt with by an automated system, it’s not so great for me when my employees need something from someone else’s business and have to spend more time dealing with someone else’s automated system than if they could just talk to a human being. Overall, I suspect the benefits of such systems outweigh burdens; but whenever I have to deal with more than one such system per day, I imagine a giant, phone gridlock in which every employee in the world is stuck working their way through someone else’s automated menu instead of talking to a human who could actually help them. Another area where I’m sure savings are possible is health care. My employer, in its efforts to control costs, has switched health care insurers so many times I’ve lost count. I and my employer could not possibly be saving in premium reductions as much money as we’ve lost as a result of the man-hours I’ve spent trying to find doctors on the new plans who were actually accepting new patients and then trying to get the plans to provide the coverage they’re supposed to provide; then there’s the time spent by doctors’ offices dealing with the paperwork, and the fact that I’m increasingly likely to simply defer potentially preventive health care because I simply tire of dealing with the insurance.

To my mind, ideally, all costs we can reasonably anticipate should be fully considered in formulating our governmental policies and accounted for in our fiscal planning, and all such costs attributable to any particular activity should be paid for in a way that bears a direct and transparent relationship to such activity. For example, whether through taxation or otherwise, the price of gasoline should include amounts to pay not only for the full cost of producing and delivering that product, but also for cleaning up all pollution that results not only from such production and delivery but also from the health care costs and lost productivity due to increased asthma, lung disease, etc.

On the BBC news, I recently heard of a proposal to impose a special tax on particularly fattening foods in response to a concern that the Brits are, they said, getting fatter and that the rise in obesity is causing significant increases in health care costs and lost productivity. The hope is that the tax would not only help pay for such costs but also give people an incentive to avoid foods that make them fat in the first place. While I can’t judge the merits of this particular proposal, it sounds worth consideration. (I note that this approach taxes individual consumers rather than the corporations who make or advertise fattening foods, although if consumption is reduced, the corporations will presumably lose profits).

As a corollary, it appears to me that, in imposing punishments or penalties, the law could and should use more often than it does the principal of restitution. The benefits are that the punishment is more likely to be proportionate to the harm done, and those harmed are more likely to be restored or fairly compensated.

Also, see the section headed, “Environmental Insurance” in the essay on this site entitled, Miscellaneous Other Systemic Issues.

Better Prioritization. Better transparency and economic accountability should facilitate better prioritization of all resources, including not only money but also our time as citizens and family members as well as workers. See the essay entitled, "Miscellaneous Other Systemic Issues," under the heading, "Work Hours and Benefits." Let me just add generally that I believe we short-change ourselves in the long-term by failing in the near-term to invest in education, health care, and the arts, among other things.

Rounding back to focus again on free markets . . . .

Leaving the Fox to Guard the Hen House. In analyzing the structure of any system, it’s important to have a clear concept of what constitutes a “conflict of interest.” A conflict of interest exists whenever either (1) the interests or welfare of an individual or agency conflicts in whole or part with those of another individual or group for or over which the former has been given responsibility or power; or (2) an individual or agency has been given responsibility for or power over the interests or welfare of two other individuals or groups whose interests or welfare conflict in whole or part with one another.

For example, the U.S. Dept. of Agriculture has been given responsibility both to protect the healthfulness and safety of agricultural products for U.S. consumers and to assist the agricultural business. This is a classic partial-conflict of interest situation, because there will inevitably be occasions when agricultural businesses feel that the costs to them of complying with regulations designed to assure that their products are safe and of providing complete disclosure about them are not justified by the benefits to consumers, while consumers will feel the opposite.

Most of us have on occasion come up with some rationalization as to why what we want really is fair or doesn’t hurt anyone else, or at least not anyone specific. Most of us have on occasion succumbed to temptation; and if temptation continues, chances are we’ll succumb again.

Conflicts of interest are to some extent unavoidable; every member of a family has a partial conflicts of interest with the other family-members; we negotiate these conflicts as best we can, usually under at least partial observation by others.

But unwatched, unchecked power confided in virtually anyone, no matter how wise and virtuous, will almost inevitably give rise to abuse eventually. No fox, however appealing or well-intentioned, should be left to guard the hen house; this asks the fox to fight a continuous battle against his own nature.

Power corrupts; absolute power corrupts absolutely. We need to know we’re being watched and that there are rules being enforced with reasonable frequency, or we need not to be subjected to temptation by being given power that we could use to help ourselves at others’ expense. Otherwise, some of us can actually start feeling like chumps for not taking advantage in the same way others do.

Another important concept in understanding a system is that of “checks and balances.” This involves using the naturally conflicting interests of different individuals or groups to try to make sure that no one individual or group acquires a degree of power over the others that would be detrimental to the welfare of the whole system. We usually have the ability, in structuring our systems, to avoid or minimize such conflicts. In the examples given above, we could create two different agencies, one responsible for protecting consumers and the other responsible for assisting agricultural businesses; or restrict securities firms from engaging both in advising investors and in underwriting stocks. The natural inclinations of the constituencies involved must be recognized and either aligned or opposed, as appropriate. This is why the “checks and balances” installed in the U.S. system by the “founding fathers” are so helpful and important.

Free markets work ONLY TO THE EXTENT that they are part of a system that keeps the powers of buyers and sellers in balance. If that balance is lost, it must be restored through structural changes, such as dividing responsibilities over conflicting interests, or appropriate regulation.

Too Much Regulation? Of course, it’s quite possible to have too much regulation or too many checks and balances. The result is some degree of gridlock, which in some situations can be catastrophic. The checking and balancing should not be so intrusive or obstructive that helpful or harmless activity or change are overly impeded or without significant benefit to those sought to be protected. (See the discussion of systems theory in the essay entitled, Cells and Systems.)

We need the strongest checks, however, on the most powerful entities. Those used to be governments; now, many are corporations.

Corporations Aren’t Necessarily Evil. Some liberals speak as if corporations per se are inherently malevolent or evil. This misses the mark in two important respects: (1) not all corporations run amuck; and (2) it’s not just corporations that run amuck, but other kinds of groups or organizations can run amuck, too--partnerships, churches and other nonprofits, clubs, committees, nations, tribes, etc. What’s important is not so much what the type of the entity is, but rather what kinds of external and internal checks and balances the entity is subject to.

It’s important to understand what a corporation is. It is not a monolith; it is an organization of individuals. One characteristic that distinguishes corporations from some other types of entities such as sole proprietorships and general partnerships is that the owners of the corporation, its stockholders, and perhaps even more importantly, the corporation's managers are shielded from personal liability beyond the amount of their investment. If the corporation borrows money, or causes harm giving rise to a claim against the corporation, the worst that can happen to the stockholders is that they lose the money they spent on its stock. They lose their investment, without being liable for any obligations of the corporation that may exceed its capital.

As a condition to this limitation of liability, the stockholders are not allowed to participate in the day-to-day management of the corporation. Rather, the corporation is run by managers, its officers. The senior officers are hired, fired, and overseen by the board of directors of the corporation. The directors are also charged with overseeing the corporation’s “big picture” financial condition, direction, and policies. The directors are elected by the stockholders; so although stockholders have no direct control over the conduct of the corporation, in theory they have indirect control through their election of the board.

In practice, however, stockholders have little or no meaningful input into how publicly-traded corporations are managed. The directors are usually selected by management. Only very rarely, when an unusually large stockholder or consortium of stockholders make extraordinary efforts, are they able to have any significant influence on the selection of directors. Also, generally, directors and officers are also shielded from or indemnified by the corporation for any liability.

The purpose of limiting the risks for stockholders, directors, and officers is to encourage investment, enterprise, and innovation. However, the way in which the limitations on liability are currently structured does little to distinguish between enterprise and innovation for the purpose of providing better products or services or improving company efficiency, on the one hand, and enterprise and innovation for the purpose of deceiving customers or investors, or other misconduct, on the other hand.

The “bad guys” are not the corporations per se; the bad guys are individuals--usually managers. But the structure of corporations as prescribed under current law includes few meaningful checks on the power of corporate managers, too many temptations and opportunities for bad individuals.

Again, I’m encouraged that these issues have received increased attention since I began writing these essays; but, so far, the remedies adopted seem patently inadequate.

It seems to me that a lot of the problems of corporate misconduct arise in part because of the following factors:

(a)Senior management has no long-term commitment to the corporation or its shareholders, and therefore has no incentive to be concerned with their long-term welfare. Stock options were supposed to help give management an interest in the welfare of stockholders and the corporation, but options don’t work if the prices and terms of exercise can be changed at the will of management, as has often been the case. And unless very carefully structured, options are ineffective to give management an interest in the longer-term welfare of the corporation.

(b)Senior management is not subject to effective oversight. So long as management selects the directors, it’s like a fox who gets to select who will oversee him in his guarding of the hen house: the fox is unlikely to select a chicken or chicken-owner as the fox’s supervisor.

(c)White-collar crime remains profitable. My impression is that senior managers involved in wrongdoing rarely pay much for their misdeeds. What’s a million-dollar fine if the culprit’s stashed much more in off-shore accounts? Full restitution to all those defrauded or harmed should be required, or at the very minimum, forfeiture by the wrongdoer of all ill-gotten gains. And why shouldn’t part of the wrongdoer’s future income remain subject to garnishment until restitution has been made?

One effect of the current push toward greater privatization of formerly public resources and functions is that, more and more, our once relatively robust governmental democracy is, bit by bit, being replaced with the much weaker variety of corporate democracy.

Better disclosure, without more, is not a panacea, although it can’t hurt. But federal law already requires publicly-traded corporations to make substantial disclosure in the forms of annual and quarterly financial reports and other filings. This information is often so voluminous and technical that most people don’t have time to read it or can’t understand it; even professional analysts can have difficulty deciphering it (viz. Enron); indeed, those making the disclosure often have every incentive to make the info as difficult to decipher as possible.

The law already includes the very helpful concept of “materiality.” Information about a corporation is “material,” and should be disclosed, if an average investor would consider such information important in deciding whether to buy or sell stock in the corporation or in deciding how to vote her or his shares (see Black’s Law Dictionary (5th ed.), citing List v. Fashion Park, Inc., 340 F.2d 457 (C.A.N.Y.), Gilbert v. Nixon, 429 F.2d 348 (C.A. Kan.), and TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438. What the law needs is another ingenious concept to make it possible to require corporations to boil their information down to a volume that’s manageable by the average stockholder yet still contains the most important points. The “long version” should also be provided, but it should also be possible to provide a meaningful “short version” for non-experts. But even that won’t solve all the problems.

It also seems clear that the same investment firms or conglomerates should not be engaged in both advising investors or managing their investments and underwriting investment securities, and that the same accounting firms should not be engaged in both preparing audits of companies for the benefit of investors and doing consulting work for the same companies. E.g., senior corporate management and corporate underwriters, accountants, and attorneys have good reason to love mergers, acquisitions, spin-offs, and other large transactions--whether or not they benefit shareholders--because such transactions are so large that even astronomical compensation packages and fees remain a small enough percentage of the total transaction size that they tend to escape scrutiny.

It’s not primarily about making foxes take ethics courses or getting chickens to analyze statements prepared by foxes. It’s about structuring the system so as to provide effective oversight of and enforcement against the fox by one or more constituents naturally motivated and qualified to protect the chickens. To fail to provide such oversight and enforcement amounts to a continuing invitation to abuse on the part of foxes. We should perhaps even consider whether we are in some sense partly to blame for the corruption of those who succumb to temptations that we could and arguably should eliminate.

Free Trade. I see nothing wrong with corporations going global if their operations are efficient and fair. Whatever trade barriers we put up, sooner or later, pent-up demand or supply will leak or burst through. Currently, inequalities in work pay, benefits, and conditions are resulting in the loss of U.S. jobs to poorer nations, and that trend will continue at a slower or faster pace until such inequalities ease. This will be a very good thing for the poorest people on this planet and should ultimately result in more overseas consumers of U.S. products. In any event, however, we’ll be better off if we accept the changes that will come sooner or later and start trying to figure out how to minimize the pain on all sides (including how to protect the poor from exploitation to the extent that can be cone without actually depriving them of the jobs they need). What concerns me is not so much globalization per se as practices that actually reduce competition or that are unfair or wasteful.

Yet another important aspect is scale. As mentioned in Cells and Systems, it seems likely that aspects of systems theory could shed light with respect to the appropriate level or scale at which various functions might best be performed. For example, when we determine the levels--e.g., national, state, and/or local--at which decision-making or funding with respect to any particular function should be handled--e.g., education, environmental regulation, stock market regulation, reproductive rights, or whatever--the decision should not be based blindly on mantras relating to states’ rights or presumed economies of scale, but upon specifiable reasons having to do with where that particular function might naturally be better performed.

Moreover, it seems to me that as any organization grows larger--be it a corporation, government, church or other nonprofit, union, or whatever--transparency and accountability tend to deteriorate. The distance between senior management at the top and the rank-and-file along the bottom increases, and there are more layers in between. At best, management at the top can lose touch with what's happening on the ground; at worst, those at the top are tempted to exploit the relative opacity or otherwise abuse their power, or the organization may become more vulnerable to being hijacked by sociopaths.

In order for the organization to continue to thrive, it must evolve more sophisticated and efficient systems for circulating critical information, including systems to gather, select, and deliver appropriate subsets of info to particular constituents reasonably well-suited to put it to constructive use. For example, it would be essential that the system should have ways to detect when any constituent--especially top management--might be defrauding the organization, and to timely deliver the relevant info to other constituents with the ability to investigate and prosecute such misconduct. One could postulate a view of the U.S. in which its decline has resulted partly due to the failure of its information circulatory systems--in particular, its self-investigatory agencies and news media--to evolve at a pace commensurate with the growth in its population and economy--at least, until the advent of the internet.

The Media as the “Fourth Estate”; Consolidation of Ownership. Thomas Jefferson is sometimes credited with having said, “[a]n informed citizenry is the bulwark of a democracy . . . .” An informed citizenry is possible, however, only if the news media fulfill their role as the “watchdog of democracy”--that is, we need the media to report to us on how well the three branches of our government are serving our interests, among other things. The media’s role is so important that, in my view, it could almost be regarded as a fourth branch of government, or at least an indispensable adjunct to it. And the media cannot fulfill this role properly if they are rife with conflicts of interest (see discussion of conflicts of interest, above).

During the last few decades, ownership of the news media has become increasingly consolidated into the hands of a few megacorporations whose primary motivation is profit, not only from their media enterprises but also from their other businesses unrelated to journalism. Moreover, much or most of the media companies’ profits come from not from the public they supposedly serve but from corporate advertisers.

According to Robert W. McChesney in an article published in March, 2001 (Monthly Review, http://www.monthlyreview.org/301rwm.htm as of January 27, 2004),

“[I]n few industries has the level of concentration been as stunning as in media. In short order, the global media market has come to be dominated by seven multinational corporations: Disney, AOL-Time Warner, Sony, News Corporation [owner of the Fox television network], Viacom, Vivendi, and Bertelsmann. None of these companies existed in their present form as media companies as recently as fifteen years ago; today nearly all of them will rank among the largest 300 non-financial firms in the world for 2001. . . . Between them, these seven companies own the major U.S. film studios; all but one of the U.S. television networks; the few companies that control 80-85 percent of the global music market; the preponderance of satellite broadcasting worldwide; a significant percentage of book publishing and commercial magazine publishing; all or part of most of the commercial cable TV channels in the U.S. and worldwide; a significant portion of European terrestrial (traditional over-the-air) television; and on and on . . . .”

See also Granville Williams of Britain's Campaign for Press and Broadcasting Freedom, at http://www.mediachannel.org/ownership/granville.shtml as of January 27, 2004 (emphasis supplied). And this was before the adoption ca. June, 2003 of the new FCC rules allowing even greater consolidation.

Those journalists and editors employed in the media have for many years now been working under these conditions of increasing consolidation in corporate hands. Surely, those media employees who have survived or chosen to remain in the business are those who found the atmosphere relatively conducive, while at least some of those who left--who may have been more inclined to take stands against their bosses’ interests--found the atmosphere less conducive. I don’t see how anyone who’s worked for others can deny that one usually tends to do better in situations in which one finds oneself more often than not in agreement with one’s boss. Moreover, there are many known instances in which reporters have been subjected to explicit instructions to censor or re-direct their coverage in order to further their employers’ interests.

More voices are better than fewer. No matter how smart, knowledgeable, and well-intentioned anyone may be, more heads still tend to do better than fewer; see the essay entitled, “What Can We Know?” regarding the role of corroboration in reaching better approximations of the truth. We cannot afford to let anyone, however well-intentioned, monopolize the means for disseminating information.

Our news media are so essential to democracy that they should perhaps be regarded as equivalent to a fourth arm of government. Certainly, we should structure this part of our system to assure that the news media do not become overly consolidated and that they operate independently of businesses or others whose interests directly conflict with the public’s need for information.

Anti-trust laws do not provide adequate limits on the consolidation of media ownership. As suggested above, such laws focus on protecting business interests and “commerce,” not on protecting the public’s access to the widest possible range of products, that is, in this instance, information and opinion. Anti-trust law does not prohibit monopolies; it only prohibits them from using their position to hurt competitors. So long as a monopolist can avoid a final court order that it’s acquired or used its position in a manner intended to hurt competitors, the public’s interest in a wide array of information is simply of no account.

The Internet is a wonderful though imperfect antidote to media consolidation. Valuable gains could be made through greatly enhanced communication and flow of information, collaborations by individuals widely separated by distance but with closely aligned interests.

Among other concerns, however, we are dependent upon ISP’s, web hosts, search engines, filters, or other agencies to identify and access information. Some countries censor site content. The U.S. government now has extraordinary power to eavesdrop on our internet communications. Web hosts in the U.S. have completely disabled thousands of innocent websites in response to government requests aimed at one “guilty” site hosted by the Web host. And many search engines prioritize search results to favor searches willing to pay rather than to favor those sites most relevant to the searcher’s query.

Remembering the “checks and balances” concept, I think we need a capable, non-governmental, non-profit agency to protect our interests as internet consumers, to monitor efforts by governments, corporations, or others to restrict, interfere with, or “eavesdrop” on internet content, access, or communications, to make sure that information and access are not disrupted or distorted because of objections to political or other content or as a result of commercial pressures.

Another concern with respect to information on the internet is the need for citations of authority, a standard practice in scholarly hard copy publications that I believe will soon be better recognized and appreciated among internet users. Citations should always include author, publication or internet address, and date. (I apologize abjectly that these essays do not meet this standard; however, in any new material I add, I hope to do better. And if you happen to be aware of proper authority either for or against any assertion set out in this site, I’d appreciate your sending it to me by clicking on “E-Mail Me” on the C-Cyte Contents page.)

Specific Journalistic Practices. Many journalists seem to operate as if their highest goal is merely to accurately repeat what they’re told by others. While this concern for accurate quotation is commendable as far as it goes, personally, I want more. And I don’t just mean that I want journalists to also accurately repeat what an opposing authority has to say on the same topic. I want journalists to actually try to verify more of the facts for themselves. I realize that, as a practical matter, this may often be impossible. Few journalistic enterprises are staffed sufficiently to allow extensive investigation. But I am convinced it could be done more often than it is now. For example, when a politician makes an inaccurate statement about her or his own past performance or position, if the matter is of any consequence and is one of public record, I think it is of utmost importance that the media identify and point out the discrepancy.

A less ambitious but very helpful goal for the news media would be, with respect to political campaigns, to try to devote at least fifty percent of their coverage to the actual positions and records of the candidates rather than the “horse-race” aspects. (All of this might, of course, require journalists to spend more time in the library, but that might actually be less expensive than dragging crews and equipment to more congenial destinations.)

The Myth of the Liberal Media. I am relieved and encouraged that this issue has received increasing attention since I began writing these essays. I have believed for some time that the media are biased--but that the bias is conservative, not liberal.
If a majority of the media still vote Democrat, does that really mean much more than that conservative forces have succeeded in shifting the entire political spectrum to the right? For there seems to be general agreement that most of the positions of a ‘nineties Democrat fall to the right of those of a ‘sixties Republican.

Who popularized the term, the “excesses of the ‘sixties”? The end of the war and the progress against discrimination that resulted from demonstrations by liberal activists in the ‘sixties were triumphs for humanity. The Viet Nam war, Nixon’s criminal attack on the integrity of our elective democracy, a.k.a. Watergate, the assassination of Martin Luther King--those were excesses. The really regrettable excesses of the ‘sixties were not liberal, but conservative; yet the phrase as used implies that the liberalism of that era should be thought of with regret if not horror.

Who made “liberal” and “feminist” dirty words?

Who picked the word, Iran-Contra “affair”? An “affair” is what Clinton had. The fact that Nixon, Bush, Sr., and Clinton may all have lied about what they did does not wipe out the fact that Nixon and Bush, Sr. betrayed their duties to their country, while Clinton betrayed his wife.

Granted, the phrases and labels may have been invented by conservative spinners, not the media; but the media has the power to decline to use those that, however catchy, seem to distort the facts.

Why did we entrap Clinton into and then seek to impeach him for lying about a blow-job, while the committee proposing the impeachment of Nixon considered his tax fraud and perjury about it insufficient bases for impeachment (see http://www.house.gov/sherman/press/oe990119text.htm ), and the word was scarcely breathed against Bush, Sr., even after compelling evidence that he’d lied to hide his role in the Iran-Contra affair, in which federal law was secretly flouted? (See http://slate.msn.com/id/12441 and http://www.businessweek.com/1997/25/b353254.htm . (Maybe it’s time to distinguish degrees of culpability for cover-ups or perjury based on the degree of culpability of the underlying act. E.g., if Clinton snuck in hamburgers while he was supposedly dieting and then lied about it, should that really be viewed as equivalent to lying about breaking laws relating to matters state?) Why did we demand apology after apology from Clinton, while Jimmy Carter was ridiculed as a prude for confiding that he sometimes lusted for women other than his wife? Why is it that only on the BBC news did I hear the report based on federal records first released in 2001 that President Ford gave advance approval to Indonesia’s invasion of East Timor?

I don’t really expect to change the mind of anyone inclined to disagree with me either about the underlying issues or the way they’ve been reported by the media; but I do want to say that there seems to me to be plenty of evidence that if there is a general bias in the media, it is not liberal.

I have not read Eric Alterman's book, What Liberal Media?, but I suspect he covers this ground well. See also, e.g., http://www.globalissues.org/HumanRights/Media/USA.asp ; http://www.mediachannel.org/originals/election.shtml .

(Proceed to next Essay, Miscellaneous Other Systemic Issues, or . . .