In a major economic address at Cooper Union yesterday, Senator Barack Obama called for a modernization of our regulatory framework. He made the case that while markets are the engine of American progress, the government’s role as a steward is critical to the function of the free market.
While I was hearing the senator speak, I could not help but think about the parallels between the financial debacle today and the issues we’re facing with global trade. In his quest to get us out of a recession, Mr. Obama may have given us a framework to alleviate some of our international trade challenges:
Update Regulations
He says that “The evolution of industries often warrants regulatory reform – to foster competition, lower prices, or replace outdated oversight structures. Old institutions cannot adequately oversee new practices. Old rules may not fit the roads where our economy is leading… For the sake of our common prosperity, we needed to adapt to keep markets competitive and fair.” In 2006, Charles Fishman wrote something similar in his excellent book, “The Wal-Mart Effect”, in which he says that “[Wal-Mart’s] business model is built on the shopping cart, but in fact, Wal-Mart is a completely new kind of institution: modern, advanced, potent in ways we’ve never seen before. Yes, Wal-Mart plays by the rules, but…the rules are antiquated; they are from a different era that didn’t anticipate anything like Wal-Mart.” Fishman continues to explain that Wal-Mart is just a symbol of the era of mega corporations (i.e. ExxonMobil, GE, P&G, Toyota), whose operations are so large and dominant that they stand astride of Adam Smith’s market forces we rely on to harness them; suffocating inflation and driving manufacturing jobs overseas while mitigating their risk by developing new markets outside the US.
Risk Assessment
“Financial institutions must do a better job at managing risks. There is something wrong when boards of directors or senior managers don’t understand the implications of the risks assumed by their own institutions. It’s time to realign incentives and compensation packages, so that both high level executives and employees better serve the interests of shareholders. And it’s time to confront the risks that come with excessive complexity.” This reminds me of the various product safety scandals that the American consumer had to wake up to, due to risk assessments that many importers had failed to fully understand. U.S. manufacturers, wholesalers, distributors, or retailers who outsource from outside the U.S. need to ensure that the products they are bringing from overseas are safe. They are liable for distributing the tainted product even if they had no direct knowledge of the risk.
International Collaboration
“As we reform our regulatory system at home, we must work with international arrangements …The goal must be ensuring that financial institutions around the world are subject to similar rules of the road – both to make the system stable, and to keep our financial institutions competitive.” Here is where the U.S. needs to take leadership, and work with its trading partners bilaterally or through the WTO to create a regulatory framework, a chain of oversight covering the whole manufacturing and food-production process as well as labor and environmental laws, to regain consumer confidence and keep a fair playing field.
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This guy drives me up a freaking wall. Here’s a recent quote by Thomas Sowell regarding Obama’s rhetoric, that although is applied in a different context, is also salient here:
” Since all things are the same, except for the differences, and different except for the similarities, it is always possible to make things look similar verbally, however different they are in the real world.”
Specifically regarding Obama’s proposals to update regulations - They are always being updated, so this is nothing new. They are being updated and influenced by the very corporations politicians are elected by denouncing through massive lobbying efforts and political contributions.
Government’s response to that has been to regulate political financial contributions (and speech! Speech!), but the money that is spent on lobbying has increased over the past few decades.
Why is that? Why would they think that’s worth it?
It’s important that we answer that question, because it allows us to address the root cause and not the effect — and without limiting the freedoms of individuals and the noble aspects of the free market, as we have, and as Obama’s record and rhetoric demonstrates he will continue to do.
This is something I may have to address later in my series on economics, but it’s food for thought in the meantime.
Thank you for stopping by Cam, you raise a good point, regulations have always been updated to the benefit of corporations with increasing lobbying power, which I agree with and here is where the opportunity to change the stalemate exist;
This country is a democracy after all, as imperfect as it may be, people still have more power than all interest groups combined, they were just ambivalent to it…
Lobbies prosper when we’re divided as a nation, distracted as citizens, when we elect a weak white house without the legislative mandate to govern, or a divided congress without the filibuster protection to legislate.
But now, we have reached that tipping point where we no longer can afford being distracted, we’re all feeling it in our pockets, Obama is not the one uniting us, it’s our common loss of prosperity, he’s only raising awareness to the challenges we’re facing and communicating , through speech and deed, that we can do better, this was not inevitable nor it is permanent, we just need to exercise our duty as citizens (get informed, vote, lobby our representatives and keep them accountable) and take back control of our economy, our community and to some measure our destiny.
Jalal - If Obama is raising awareness of the symptom, he’s prescribing the wrong treatment. In his case, the cure is worse than the disease, and Americans need to be aware of THAT much more than they need to be aware of what you pointed out they already know without Obama’s speeches.
That’s why we MUST ask the question WHY corporations are spending so much money on lobbying.
What do they have to gain?
When we identify that incentive, the question becomes this: Should we regulate the effects of that incentive (the symptoms), or do we remove the incentive altogether?
One solution (and I bet dollars to donuts that it would be Obama’s first choice) might be to restrict lobbying by corporations first and executives (who are voters, too) — which is in effect restricting freedom of speech and to petition the government, both of which are protected by the 1st Amendment.
However, the truth of the matter is that there is a solution that embraces freedom, costs less, and works better anyway. Just don’t look for it to come from Obama (or, in fairness, any of the current major presidential candidates), because they have too much to gain politically by feeding the animosity caused by the people’s hardships that keep them from analyzing the issue objectively.
Hmmm. I don’t know exactly what is being posited here
but I do see healthy discourse.
I see those three points above as things we could all pretty much agree on, no? Regulations are meant to protect and serve; qualitatively assessing them involves a benefit/burden analysis on all parties, be they affected directly or indirectly.
I also like the concept of State and Municipal rights, as allowed for by the U.S. 10th Amendment in that powers that the Constitution does not delegate to the United States and does not prohibit the states from exercising, are “reserved to the States respectively, or to the people.” Lastly, I strongly believe in enacting voluntary guidelines before things necessarily can go awry.
There is nothing wrong with lobbying or ‘special interests’, constituents want to have a voice. Folks can be concerned about their level of influence and the loudness of their voice.
The only thing that matters is that we progress forward as a nation, together. I think the only real differences here are between what we value individually. For me, that is freedom with a government that acts in the best interest of society, commerce, and the environment.
Mario - IMO, you’re right on top of the issue with two great points, in particular.
1. Limited powers of the federal government
2. Why people (and businesses) are interested in lobbying
If we adhered to #1, the gobs of money spent to influence the government in an effort to get it to exercise a power it doesn’t have would be pretty much wasted.
All of that to say this: It is not government’s job to make everyone successful or happy or free from turmoil or risk or strife.
It can’t do that anyway. It has neither the unlimited knowledge it would need nor the wisdom to carry it out.
All it can do is use the force of law and the threat of punishment (just or not) to take freedoms away or protect them. It is not to take from one group of people to give to another.
Yup, responsible government acts in the best interest of its publics. If they’re acting outside their jurisdiction, we should call them out on it, whichever way we lean toward. Law is the only rightful arbiter of justice.
“Law is the only rightful arbiter of justice.”
I would make a slight modification. *Just* law is the only rightful arbiter of justice. Evil can and has inflicted on others under color of law.
Of course, that implies a higher power. We just might get to talk about Natural Law next week!