Business Scandals and Democracy

“Children and economists,” Robert Lekachman once said, “may think that the men at the head of our great corporations spend their time thinking about new ways to please the customers or improve the efficiency of their factories and offices.” After the revelations about Enron, Arthur Andersen, Global Crossing, Tyco, Dynegy, Adelphia, and WorldCom, most children no longer believe this. As for economists, well, apparently many of them don’t read newspapers.

Last summer, in the midst of one of the largest business scandals in seventy years, Alan Blinder, an economist at Princeton University, a former economic adviser to President Bill Clinton, and vice chairman of the Federal Reserve Board, told the New York Times, “If you go around asking academic economists, ‘Do you think we should re-regulate the airlines or trucking or any other deregulated industry?’ you would get no votes.”

Adam Smith was a bit more sensible. He described those who “live by profit” as men who have “an interest to deceive and even to oppress the public.” Sometimes the deception gets out of hand-as it did in the 1920s when business excesses led to the Great Depression in the 1930s-and then government steps in to regulate. For almost fifty years the regulations put in place by the New Deal-the Securities and Exchange Commission (SEC) reviewed company accounts, the Glass-Steagall Act separated investment houses from commercial banks, the Federal Trade Commission and the Justice Department limited mergers and monopolies, strong unions protected workers-were effective in preventing widespread business scandals and financial corruption.

Then some twenty years ago, corporations launched an attack to limit the power of government. The turning point was the election of Ronald Reagan. Immediately upon taking office, Reagan created the Presidential Task Force on Regulatory Relief, chaired by Vice President George Bush. Its goal was to remove government oversight of business practices and reduce or eliminate the accountability of corporations and their officers to the public. It did its work. Enforcement budgets were slashed.

By the end of the decade the deregulated savings and loan industry was bust (the cost to taxpayers: several hundred billion dollars), and Ivan Boesky and Michael Milken were in jail for their part in a massive insider-trading scandal. The crimes back then were not petty larcenies, although Milken’s hired guns, along with people who have a heavy ideological investment in the “greed is good” philosophy have done all they can to make us think otherwise.Milken was the target of a ninety-eight-count criminal indictment and a massive civil case filed by the SEC. The charges against him included insider trading, price manipulation, falsifying records, filing false reports, racketeering, and defrauding customers. Milken never went to trial on the...