[NOTE: Since this is an event, I'm putting it on the Calendar. But it also occurs to me that some sort of celebration might be a good idea as well. After all, it looks like Powell's memo was a blueprint for our current arrangement of political economy. Perhaps we could parade a few coffins in some bank lobbies? --lambert]
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The great Bill Black:
My Class, right or wrong: the Powell Memorandum’s 40th Anniversary
August 23, 2011 will bring the 40th anniversary of one of the most successful efforts to transform America. Forty years ago the most influential representatives of our largest corporations despaired. They saw themselves on the losing side of history. They did not, however, give in to that despair, but rather sought advice from the man they viewed as their best and brightest about how to reverse their losses. That man advanced a comprehensive, sophisticated strategy, but it was also a strategy that embraced a consistent tactic – attack the critics and valorize corporations! He issued a clarion call for corporations to mobilize their economic power to further their economic interests by ensuring that corporations dominated every influential and powerful American institution. Lewis Powell’s call was answered by the CEOs who funded the creation of Cato, Heritage, and hundreds of other movement centers.
Lewis Powell was one of America’s top corporate lawyers and President Nixon had already sought to convince him to accept nomination to the Supreme Court before he wrote his memorandum. Powell was famous for his successful efforts on behalf of the Tobacco Institute. ....
The issue I wish to emphasize, however, is why Powell and Fortune viewed Nader’s statements as evincing “hatred” of the enterprise system. Focus on what Fortune (a virulent opponent of Nader) says that Nader argued. Nader believed that the CEOs leading anti-consumer control frauds should be imprisoned where they (1) defrauded the consumer with shoddy merchandise, (2) poisoned the food supply, or (3) willfully manufactured unsafe products that will maim or kill the buyer. Powell and Fortune view these beliefs as radical, dangerous, and hostile to what Powell refers to in his memorandum as the “enterprise system.”
I submit that Powell and Fortune are not simply incorrect, but as wrong as it is possible to be wrong – and that Powell was blind to reality despite his intellectual brilliance in corporate law. First, is Nader the only one who believes that CEOs who commit control frauds are criminals? Anti-customer control frauds have defrauded, maimed, and killed hundreds of millions of people. In my prior columns I have focused on accounting control frauds because they are the “weapon of choice” in finance. One way of classifying variants of control frauds is by their principal intended victims. Accounting control frauds target creditors and shareholders. Anti-public control frauds target the general public, e.g., tax fraud, the illegal dumping of toxic waste, or illegal trading in endangered plants and animals. Anti-employee control frauds target employees, e.g., by not paying workers wages they are due or exposing them unlawfully to unsafe working conditions.
Anti-customer control frauds target customers. The seller may deceive the customer as to the quality, quantity, or safety of the good or service or the legal authority of the seller to convey the good and/or the promised security interest in the good. Cartels are another variant of anti-customer control fraud. The fraud is that the firms purport to be competitive rivals when they are secretly co-conspirators acting against the customers. Examples of recent anti-customer control frauds that maim and kill include the recurrent counterfeit infant formula scandals (which killed six infants and hospitalized 300,000), various lead toy scandals, counterfeit cough syrup (made with toxic anti-freeze), defective body armor for U.S. soldiers, unsafe water for U.S. troops, unsafe showers for U.S. soldiers (electrocution), counterfeit medicines including anti-malarial drugs, dwellings falsely certified to comply with seismic codes that pancake in earthquakes and kill tens of thousands. Then there are cigarettes, which were actually sold via fraud, are addictive, and lethal if used as intended. This form of fraud, addiction, and lethality was so effectively marketed that it became immune from normal laws and legal restrictions for centuries. Cigarettes have killed millions of customers and others subjected to second hand smoke.
Many anti-customer frauds do not routinely maim and kill. Misrepresenting the quality of a car to a customer can cause him a serious financial loss, but most of the hidden defects will not cause him or others physical injury. (Defects involving the brakes or safety equipment can imperil the customer, passengers, and the general public.) We call a terrible quality car a “lemon” and George Akerlof’s famous article on “lemon’s” markets was published one year before the Powell memorandum. It was this article that led to the award of the Nobel Prize in economics to Akerlof in 2001. ...
Powell and Fortune believe that prosecuting criminal CEOs is terrible for businesses, terrible for CEOs, and terrible for “free enterprise.” They conflate support for prosecuting criminal CEOs with “hatred” for “corporate power” and they conflate “corporate power” with “free enterprise.”
This is an incredibly dense post, full of linky and analytical goodness. For example, the connection between lemon market, information asymmetry, accounting control fraud, and statistical murder is new to me, but makes complete sense, and foreshadows the accounting control fraud by the banksters as well.
