Scandal follows Scandal but Who Needs Regulation?

Oh my goodness! Volkswagen, which distanced itself from its Adolf Hitler aided beginnings and the taint of using slave labor to become the largest automobile manufacturer in the world has exploded in the biggest manufacturing scandal of the year – maybe in several years but who can keep track?

From Upton Sinclair’s exposure of corporate meat packing fraud and filth to today, the rolls are filled with dishonorable corporate activity. I know, I know, not all of the, but how many bad apples in a barrel before you don’t want anything to do with the whole lot?  Here are a couple of lists just to jar loose the memories. The Biggest 25 Ever (probably not, but all recent.)  And here’s a Wiki list, pretty short on Gilded Age scandals but still, many.

So, the problem is not, nor has ever been, one bad apple.  The problem is the set up of corporations to spin up the “virtuous circle” of profits and the resistance to any kind of regulation or oversight for the common good.  Today’s James B Stewart article in the NY Times makes the point about VW with plenty of detail:  it was not just the CEO Winterkorn, nor a rogue engineer somewhere.  It starts at the top, with the Board.

Volkswagen’s recent history — a decades-long feud within the controllingPorsche family, a convoluted takeover battle and a boardroom coup — has dominated the German financial pages and tabloids alike. This week, the German newspaper Süddeutsche Zeitung compared Volkswagen’s governance to that of North Korea, adding that its “autocratic leadership style has long been out of date.” It said “a functioning corporate governance is missing.

Image result for volkswagen pollution

… I spoke this week to a longtime former senior Volkswagen executive, who agreed that a scandal, especially one involving emissions, was all but inevitable at Volkswagen. He cited the company’s isolation, its clannish board and a deep-rooted hostility to environmental regulations among its engineers. …  engineers felt that the politicians were guilty of rank hypocrisy, especially in the United States, also grumbling that electric cars make no sense as long as power plants are burning fossil fuels.

“There’s an attitude of moral superiority there,” he said. “The engineers think they know best.”

And, of course, it’s not new. Cheating, cheating, everywhere.  Because, who does the testing? Why those who have products to be tested! Wahoo!  Let the students test themselves…

Paul Krugman weighs in with a quick summary of very recent corporate scandals and hammers the drum for a return to reasonable regulation.

There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior, not least so that ethical business people aren’t at a disadvantage when competing with less scrupulous types. But we knew that, right?

Well, we used to know it, thanks to the muckrakers and reformers of the Progressive Era. But Ronald Reagan insisted that government is always the problem, never the solution, and this has become dogma on the right.

As a result, an important part of America’s political class has declared war on even the most obviously necessary regulations.

And ALL PRAISE! to the folks who found out:

Peter Mock, European managing director of a International Council on Clean Transportation and his American counterpart, John German, were sure that tests would show VW diesel to be clean!  They hired West Virginia University’s  Center for Alternative Fuels, Engines and Emissions where Dan Carder was director and research assistant professor Arvind Thiruvengadam and his colleagues hoped to be able to publish a few scholarly articles.  They actually had results a year ago which triggered more tests and inquiries by the EPA and European authorities.  Bam! The VW castle is barely standing.

And, by the way, were automobile code “open code” instead of proprietary, some young nerds might have discovered the problem several years ago.

Short Term Thinking in a Long Term World

Eduardo Porter, business columnist for the NY Times (and always worth reading) tells us the deferred gratification discipline that made modern capitalism such a force is falling apart.

… talk to a scientist in a research lab almost anywhere and you are likely to hear that the edifice of American innovation rests on an increasingly rickety foundation.

Investment in research and development has flatlined over the last several years as a share of the economy, stabilizing at about 2.9 percent of the nation’s gross domestic product in 2012, according to the National Science Foundation.
That may not be far from the overall peak. But other countries are now leaving the United States behind.

And even more critically, investment in basic research — the fundamental building block for innovation and economic advancement — steadily shrank as a share of the economy in the decade to 2012, the last year for which there are comprehensive statistics.

The trend poses two big challenges. The first concerns government budgets for basic research, the biggest source of financing for scientific inquiry. It fell in 2013 to substantially below its level 10 years earlier and, as one of the most politically vulnerable elements in an increasingly straitened federal budget, looks likely to shrink further.

Of course this would have been made clearer by removing the passive voice.  It didn’t just fall.  It was deliberately and consciously cut by a  determined sector of congress, almost entirely Republicans…”

The second, equally important, challenge regards the future of corporate research. Evidence suggests that American corporations, constantly pressured to increase the next quarter’s profits in the face of powerful foreign competition, are walking away from basic science, too.

And again pressured by whom? Actual pressure, or imputed pressure?  The following is more specific:

Corporate executives, their compensation tied overwhelmingly to short-term gains in the market value of their companies, may be responding accordingly.

 Read All

Inequality Rules

Eduardo Porter in the NY Times business section, always interesting to read, reminds us that inequality is not simply a minimum wage issue.  Citing Joseph Stiglitz’s latest book, “The Great Divide” (W.W. Norton & Company), he writes:

It includes the steady tightening of intellectual property rights and the rise of finance, with its lavish rewards for activities of dubious social value. It includes the furious consolidation of industry, which has reduced competition across the economy.

Professor Stiglitz is particularly incensed by the Obama administration’s attempt to include investment pacts in trade agreements it is negotiating with Asia and Europe, which would allow multinationals to sue governments for compensation if regulation hurts their profits.

Another commentator, Shi-Ling Hsu at the Florida State University College of Law, that that a huge piece of the inequality puzzle is being missed:

 the role of law in distributing wealth.” Subsidies, tax treatment, legal protection and other mechanisms conspire to aid the wealthy while often serving to damp economic gains.

Grandfathering existing businesses to protect them from new regulation is a classic way to protect profits, shielding incumbent businesses and deterring new entrants that would face costlier regulations. Granting water rights to whoever first uses the water amounts to another gift to business that can entail large social costs. (In California, for example.)

Read it all.  Good thought points

$2.1 Trillion Withheld from Contributing to Nation’s Well Being

These corporate guys are like teenagers partying at what was once a nice location, tossing junk into the lakes, roaring up and down the roads, turning them into washboards and reading only beer can labels instead learning new and better ways of making the stuff of human nutrition.

Keep their profits off-shore, avoid taxes, contribute to the collapsing of the U.S. infrastructure and education of the young so that eventually the economic ecosystem that enabled their phenomenal growth collapses, and they along with it.

Eight of the biggest U.S. technology companies — including five from the Silicon Valley — added a combined $69 billion to their stockpiled offshore profits over the past year, even as some corporations in other industries felt pressure to bring cash back home.

Microsoft Corp., Apple Inc., Google Inc. and five other tech firms now account for more than a fifth of the $2.1 trillion in profits that U.S. companies are holding overseas, according to a Bloomberg News review of the securities filings of 304 corporations.

The total amount held outside the U.S. by the companies was up 8 percent from the previous year, though 58 companies reported smaller stockpiles.

There are mounting calls to bring back the military draft of young people so that “everyone has a stake” in the decisions to go to war or not.  I say, draft the corporations and the profits they make due not only to their own genius, hard work and good luck, but to the societal, legal and governmental structures that made it possible, and which all need on-going maintenance.  Take that away and the U.S. will soon look like an untended neighborhood, with abandoned houses, broken windows, listless residents and no way to find a way out.

Ecosystem Services

James Surowiecki of the New Yorker, brings to our attention the concept of wealthy countries paying for ‘ecosystem services’ as one tool in the vast array needed to mitigate climate change and associated environmental destruction.  As in many things, Norway is showing by example.

It was notable when Norway announced a deal with Liberia: Norway will give Liberia up to a hundred and fifty million dollars in aid, in exchange for which Liberia will work to stop the rapid destruction of its trees.

Liberia has much of what remains of West Africa’s rain forest, but logging is rampant. The initiative is not an act of charity but a trade: Liberia gets income, which it needs; Norway gets to preserve biodiversity and take a small step against climate change. A similar deal that Norway struck with Brazil years ago helped slow deforestation there. Economists call arrangements of this kind “payments for ecosystem services,” and they follow a rationale known as the Coase theorem. In 1960, the economist Ronald Coase argued that bargaining between parties could, under certain conditions, produce a mutually beneficial and efficient solution to problems like pollution. Trying to force Liberia to stop chopping down trees (by using, say, sanctions) would be high-handed and probably ineffective. Paying Liberia to do so makes both sides better off.

… For the West, which is historically responsible for most of the carbon dioxide in the atmosphere today, paying developing countries to make the transition away from carbon is not only the right thing to do but also squarely in our self-interest. Greenhouse gases emitted in Africa harm us as much as those emitted here. “If Africa just burns the coal and oil that it has at home in order to industrialize, it’ll do trillions of dollars of damage…

Good, thoughtful stuff

Slashing Spending Increases Deficits

Economists Paul Krugman, Brad DeLong and even Larry Summers have long argued that cutting government spending during a recession is bad policy — and have pointed to the failure of such policies in Europe as proof.  Now new evidence supports them.

The fundamental economic question of the last five years has been a simple one: how much does stimulus work? The answer, according to a new paper by Daniel Riera-Crichton, Carlos Vegh, and Guillermo Vuletin, is much more than we previously thought. And that means austerity has also hurt more than we thought — so much so that it might even be self-defeating.

That’s right: cutting spending in a slump might actually make debt problems worse.

…This leaves us in an upside-down world where smaller deficits might actually make our debt problems worse. When interest rates are zero, spending cuts can cripple the economy so much that GDP falls more than the government saves. And that means the debt-to-GDP ratio might increase even though government spending is decreasing — like it has in Greece. That’s why the IMF thinks infrastructure spending would almost pay for itself right now,

WonkBlog: Washington Post

So let’s get it on!  The American Society of Civil Engineers gives the U.S. a D+ for its infrastructure effort.

More Bunko-Steerers in the Health Care Fight

“The television ad sponsored by the advocacy arm of the National Federation of Independent Business featured a small-business owner in Arkansas, frustrated at what he said are the higher bills he has seen since the Obama administration’s health care plan went into effect — and pointing blame at Senator Mark Pryor, a Democrat considered one of the most vulnerable incumbents facing re-election this fall.

“But the largest chunk of the money donated to the nonprofit group’s advocacy came not from small-business owners, but rather from health insurance companies trying to repeal a health care tax, the most recently available federal tax records show.

“The largely hidden role of the for-profit health insurers highlights the increasingly confusing world of campaign finance, as nonprofit groups like theNational Federation of Independent Business and its Voice of Free Enterprise program can keep their donor lists secret, and then present their carefully crafted message, financed in large part by big business, as if it is coming from, perhaps, a more sympathetic voice.

NY Times

China and Change

Eduardo Porter in the NY Times, recently focusing on climate change in his Economic Scene column, [here and here, here and here] takes a look at China, which even though it has announced steps larger than those of the US has a larger problem, and solving it will not be easy:

A coal heating plant in Beijing

A coal heating plant in Beijing

In Beijing, He Jiankun, an academic and deputy director of China’s Advisory Committee on Climate Change, told a conference that China, the world’s largest greenhouse gas polluter, would for the first time put “an absolute cap” on its emissions.

However, he soon clarified

 He was not announcing policy in Beijing. “I’m not a government official, and I don’t represent the government,” he said.

Though Porter’s article is about China, he comments on the US as well, perhaps too easily thinking it has turned some sort of corner and will, by example, bring others along.  His point, however, is that even if the US were to start sucking CO2 out of the atmosphere tomorrow, China (and India) are enormous parts of the necessary solution.

It is well known that preventing a climate catastrophe requires China’s participation: The country accounts for over a quarter of global greenhouse gas emissions. Over the next 20 years, China’s CO2 emissions will grow by an amount roughly equal to the United States’ total emissions today, according to the latest baseline forecast by the Energy Information Administration, released last year.

But the scale of China’s challenge is less well grasped. It might be best understood by slicing the growth of CO2 emissions into four driving forces: the expansion of the population, the growth in people’s incomes, the amount of energy needed to produce a dollar of income, and the amount of CO2spewed for each unit of energy used.

Even assuming that China’s population does not grow at all over the next 30 years, that the energy efficiency of its economy increases at a faster pace than most developed and developing countries and that it manages todecarbonize its energy sources faster than pretty much anybody else, China would still be emitting a lot more carbon in 2040 than it does today, according to E.I.A. calculations.

NY Times; Eduardo Porter

Myanmar Sailing on the Tourist Dollar

“Myanmar has been rejuvenating from the impact of travel sanctions imposed by European countries three years ago and is emerging as a favored travel destination in Asia.

“According to the Ministry of Hotels and Tourism of Myanmar, tourism has become a major source of the country’s fiscal income and the country is expected to receive three million travelers in 2014.

“Before 2011, only fewer than 800,000 tourists visited Myanmar every year on average.


“Chinese visitors have accounted for a large proportion in the total number of foreign visitors to Myanmar. In many scenic spots and souvenir markets, signboards written in Chinese are seen everywhere. In the most famous Aung San souvenir market in Rangon, the number of visitors may top 100,000 and most of them are Chinese


All this emphasized by the glowing report in The Wealth Scene.

And those pesky Royhinga, rioting Buddhists?  The Kachin rebellion?  Keep on moving, nothing to see….

Burma rakhine-fire-water_2245212k

GOP — Kicking the Poor, Again

WASHINGTON — A proposal to raise the federal minimum wage to $10.10, an underpinning of President Obama’s economic agenda and an issue that Democrats hope to leverage against Republicans in the midterm elections, failed in the Senate on Wednesday.

The vote was 54 to 42, with 60 votes needed to advance the measure.

All but one Republican voted to sustain a filibuster against the measure, saying that the increase would damage the fragile economy and force businesses to cut hundreds of thousands of jobs.