How the Top 1 Percent Capture Our Regulators... and the American Dream

The kind of structural corruption present in American politics and industry today is reminiscent of what one sees in modern communist China, or during the transition years away from communism in Eastern Europe.
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In describing the intense lobbying efforts by Comcast last year to close its merger with NBC Universal, legal scholar Susan Crawford put it this way to the New York Times: "It's about as subtle as a wet fish in the face."

That makes last week's announcement by Federal Communications Commissioner Meredith Attwell Baker the proverbial Mack truck. Baker is resigning to take a top lobbying position at ...NBC Universal in Washington, just months after she voted to approve the deal. As the Times noted last week, "Only one F.C.C. commissioner, Michael J. Copps, who voted against the Comcast-NBC merger, expressed surprise at her departure."

And herein lies the scandal. No one is surprised. James Fallows in the Atlantic attacked this issue late last year, after Budget Director Peter Orzsag, who helped shape the stimulus plan, announced he would be taking an executive job with Citigroup, a beneficiary of taxpayer bailout dollars. There's been no allegation of personal corruption against Orzsag or Baker, who came out swinging in a statement Friday. She insisted she went above and beyond in following all the ethics rules while getting the NBC Universal job and will adhere to formal lobbying restrictions after taking the job. But Janine argues that there is a dizzying array of informal, unregistered lobbying that flies under any existing disclosure rules.

Fallows put this kind of shadow influence in the case of Orzsag into perspective:

...unavoidably he will call on knowledge and contacts... developed while in recent public service. [Taken together, these] Orszag-like migrations [i.e., Baker's new job].....pile up in the background to create a broad American sense that politics is rigged, and opportunity too.

This kind of structural corruption reminds him of communist China, where he has done much reporting, just as Janine sees striking similarities between the transition away from communism that she witnessed in Eastern Europe, and modern-day influence-peddling here in the West.

Often the response to such stories is, essentially, "it's always been this way, tell me something I don't already know." But political scientist Tom Ferguson and Rob Johnson, executive director at the Institute for New Economic Thinking (INET) make the case that it hasn't always been this way. They charted the top salaries of financial regulators versus the top salaries of those they regulate on Wall Street. From 1949 to the late 1970's, there was almost no gap. But the divide cracked open in the late 1970's, and grew larger until it exploded starting in the early 1990's. (While the gap is perhaps most dramatic in finance, this trend cuts across most, if not all, industries - executive pay has soared pretty much across the board.) The authors call the gap the "opportunity cost of doing good":

Rising economic inequality was translating into a crippling institutional weakness in regulatory structure....[R]egulatory agencies turned into barely disguised employment agencies, as staff increasingly focused on making themselves attractive hires to the firms they were supposed to be regulating. Once that gulf reaches a certain point, talk about improving regulation .... is largely idle....Some way has to be found to prevent regulators from being swept up by a golden equivalent of the whirlwind that carried the prophet Elijah up to heaven.

That "whirlwind" of private sector riches inevitably makes some regulators less apt to confront a possible future employer. Consummate insider Larry Summers recently made this point (and used it to explain why he thinks regulation often backfires.) In a discussion Janine attended at the Bretton Woods economic conference sponsored by INET, the former Treasury Secretary said "there are decisions going to be made....and people are going to have incentives and they're going to follow their incentives...."

Increasingly, they follow them right out the door to a corporate lobbying post. And as Janine has documented, these players often load up with other roles that augment their power in ways that are hard to measure and call to account, whether in think tanks, media, academia or informal "advisory" positions. (The New York Times also noted last fall, in chronicling Comcast's lobbying blitz, that because "not all of Comcast's persuasive techniques are subject to disclosure, it is impossible to know exactly how much money has been spent." Indeed, they showed that philanthropy had its uses: one director of a Boys and Girls Club who received $20,000 also received a draft letter from Comcast, to be sent to the F.C.C., letting them know what an upstanding corporate citizen Comcast was.)

The Times last week addressed the problem of what lobbying really encompasses in an editorial on Baker's move, called "That Didn't Take Long." Like Janine, they argue "the definition of lobbying [should be expanded] beyond face-to-face encounters to any effort to influence government decisions for their clients." The paper said that various lobbying rules and cooling-off periods are easily evaded, and they advocate capping what former officials and former lawmakers can earn from lobbying before formally registering as lobbyists.

There's another possible remedy some have suggested: pay regulators more, enough to remove the temptation to approach the regulated with kid gloves. We can almost hear the fiscal austerity hawks hyperventilating at the mere suggestion of paying government employees more. It seems unfathomable that idea will go anywhere, in this age of relentless rhetoric exhorting small government. And yet consider the words of the one intrepid dissenter to the Comcast-NBC Universal deal, Michael J. Copps, the only one surprised by his colleague's new job at the cable giant. After cataloging the many reasons he believed the deal was bad for average Americans, he adds, "...simply blessing business deals is not the FCC's.... job." Not exactly the kind of talk that would win favor with a future corporate employer, but precisely what you'd want to hear from a regulator protecting the little guy. As Copps says, "the status quo is not serving the public interest." He was talking about cable industry consolidation but this could easily describe the whole of the system. Too bad we can't give Copps the big, fat raise he deserves: his term is up at year's end.

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