A Teachable Moment

by Christopher Hayes

Matt links to a McClatchy piece about how the Bush administration, in concert with the Chinese government, worked against tightening inspection and regulation of toys manufactured in China. Dog bites man, to be sure. But what's really striking to me is how Democrats have completely failed to use the steady and growing trickle of stories about dangerous products emanating from the unregulated factories of China to make the broader case for importance of regulation. When I took intro economics at the University of Chicago, I remember my professor dismissing with a caustic laugh the very notion of public health inspection of local restaurants. "I don't think the Medici would stay in business very long if they took to poisoning their customers."

That's more or less the belief system (if you can call it that) that the Bush administration has marshalled to combat something as commonsensical as, you know, making sure children's toys aren't coated in lead paint. So this is as teachable moment as they come, and you can bet that, if, say, the national healthcare system in France was accidentally poisoning its patients, we'd be hearing a chorus of conservatives making the case that this was example of the ideological bankruptcy of state-run healthcare.

So where's the chorus on the other side? Rick Perlstein has been eloquent and consisent in calling attention to the connection between the ideological commitments of modern-day conservatism and the inevitable degradation of public infrastructure and regulatory standards. Other bloggers have joined him, but this is an object lesson in the inability of Democratic politicians to wholistically articulate a social democratic vision even when the opportunity is handed to them on a platter.

Corporate Responsibility Must End!

I've given Democracy (a journal of ideas!) a bit of a hard time in recent months, but their latest issue is genuinely fantastic. It contains a couple of articles I want to talk about, but the most important is Aaron Chatterji and Siona Listokin's ferocious critique of the corporate social responsibility (CSR) movement. As they argue, liberals have largely abandoned attempts to change the economy through government regulation and action and begun seeking instead to convince individual corporations, by way of PR campaigns and lobbying efforts, to become better economic citizens. This is foolish, in addition to being ineffective.

As Chatterji and Listokin document, corporations have become scarily adept at using the atmospherics of CSR to escape real regulation or public outrage. Here's how it works:

Imagine a world with one voluntary code of conduct governing the operation of apparel factories. Let’s call it the Golden Code of Conduct (GCC). This is a strong code that calls for the provision of a living wage, recognition of unions, and limits on working hours. Now suppose another set of companies who do not want to abide by the code, but still care about consumer perceptions, creates their own code, called the Super Code of Conduct (SCC). Their code lacks many of detailed provisions of the GCC, but it has some vague language about treating workers with respect. Companies must decide which code to adopt, and the SCC is clearly cheaper to institute. For high-minded companies that want to live by the more stringent code, the high costs could make them uncompetitive in supplying retailers. Meanwhile, the benefits are only significant if consumers can tell the difference between the two codes. If a company can retain the benefits of an improved image but not incur the cost of improved working conditions, there is no reason to expect them to choose the less stringent code.

Meanwhile, the willingness of progressives to accept corporate self-policing diminishes demand for government action that could impose standards not just on a few individual businesses, but on whole industries. That's a far more sustainable strategy. CSR, after all, means that those who choose virtue will become almost instantly less competitive, while their competitors will see no similar change. Indeed, part of Wal-Mart's rise was exploiting the higher labor costs of older retailers who'd emerged at a moment when they were expected to compensate employees fairly and generously. By ignoring such voluntary restrictions, Wal-Mart undercut, and out-competed, an array of retailers who'd made the mistake of demonstrating some CSR. And if the shaming campaigns of Wal-Mart Watch and Wake Up Wal-Mart miraculously succeed at forcing a similar moral epiphany in Bentonville, some currently unknown retailer will emerge in a few years to start the process all over again.

The essential problem here is that liberals are trying to fix market failures by asking market creatures to ignore, well, the market. Corporations are damn good at making profits. The market is damn good at encouraging profits. If society decides, however, that the drive for profit is creating unwelcome externalities, or somehow harming the common good, it has government to step in and set limits on the market. And that's the right order of things. Corporations should do what they do best -- seek profit -- and society should set, if needed, universal and fair limits across industries, enabling useful competition, ensuring a floor of wages and labor standards, and safeguarding the environment. The progressive insistence on CSR promises a whack-a-mole future, where one battle necessitates the next, as other corporations seek to take advantage of the self-imposed standards of their competitors. Government regulation, which is both more effective and far-reaching, is a much better way to go, and progressives should rediscover that.

Update: It's worth being clear here that the critique is about using CSR as a way to regulate economic activity, it's not against using it as an organizing technique that could, for instance, shame corporations into allowing government regulation, or universal health care.

At Tapped, too.

Trends

Without sucking up to the new boss too much, let me highly recommend this Harold Meyerson piece responding to Kos's Libertarian Democrats manifesto. I recommend it despite finding it an enormously frustrating piece of work -- I have, after all, spent the last few months of blogging and my September feature story trying to say what Harold does in these three paragraphs:

there are some basic Democratic principles that are not libertarian, and that even Markos’ Mountain State mavericks still affirm. None of them have called for privatizing Social Security. None of them have called for abolishing Medicare. They may be civil libertarians and to some degree social libertarians, but they’re not economic libertarians. And for good reason: Economic libertarianism has never been more preposterous.

For the dominant social fact in America today is this: The corporate safety net is fast disappearing. Risk has been transferred to the individual—a decision in which individuals, as such, haven’t had a say (though their apprehensions about privatizing Social Security did nip that idea in the bud). Corporate pensions are vanishing and 401(k)s don’t provide equivalent retirement security. Fewer and fewer companies are offering medical benefits, even though corporate profits are at a 50-year high as a percentage of GDP. Companies that persist in offering such benefits are placed at a disadvantage when their competitors don’t. And consumers clearly can’t afford those benefits, either. As some recent surveys have made clear, precious few Americans can afford to buy medical insurance on their own or to utilize the Health Savings Accounts that the president is peddling.

In short, as the balance of forces in capitalism shifts entirely towards investors and executives and away from employees, the need for a state that takes the burden of economic and health security off employers who won’t pick it up and employees who can’t pick it up is increasingly urgent. It’s hard to predict what exactly the tipping point will be as our private-sector welfare state continues to contract. But at some point, the Democrats will embrace a decisively larger role for the state in these matters because the public will demand it—not because the public will suddenly identify itself as liberal, but because there will be nowhere else to turn.

Quite so. It's not that the rhetorical cover of libertarianism isn't a clever or useful one, or that the American people will suddenly turn against the concepts of individualism and autonomy. It's simply that the trends will obviate all that. As wages stagnate, the corporate welfare state contracts, health costs go up, economic insecurity increases, inequality accelerates, and worker power continues to decline before globalizations, something will have to be done. Folks will demand it. And cute as it is that large swaths of the conservative movement are convincing themselves that Americans will respond to excess risk and financial exposure by demanding more risk and financial exposure, I'm just not seeing it.

It Ain't About Bigness

The quick-moving conversation on whether liberals have anything to say to libertarians who believe corporate power is only dangerous when united with state patronage is an interesting one, and worth thinking seriously about. The libertarians involved argue that liberals -- many of whom want to extend, enlarge, or at least perpetuate state power -- are unwittingly but unerringly strengthening the corporations they seek to constrain. Many of the liberals involved think that's nonsense.

Part of the problem here is the simplicity and inadequacy of "Big Government" as a descriptor for much of anything. You can have a huge, interventionist, and corporatist government that doesn't do much to advocate for the public interest, but is nevertheless interventionist in nature and monumental in scale. As LB points out, after the Pinkertons would finish beating strikers, the police would throw the bloodied laborers into jail. That was Big Government, but not in the sense that the left means it.

At other times, government has been a pretty determined enemy of corporate power. It shattered Standard Oil, broke up AT&T, and curtailed Microsoft. It passed seatbelt laws, the Clean Air Act, and opened the door to unionization. It worked to elevate the interests of society over those of business. But yes, as the libertarians say, it can be as evil as it can be good. That warning suggests that it's not the size of government, but the type of government, that matters. Many libertarians reject the possibility of a positively-oriented state -- capture is inevitable. Liberals are fundamentally more optimistic on that front, and note that, in any case, the small government ideology has proven to do little but rechannel the state's efforts into promoting corporate power. So if liberals focus on the possibilities for restoring elements of the progressive movement into the state, they do so because nothing else has proven even partially capable of counterbalancing corporate power. Government may be a blunt tool, but it's the only one we've got.

Economics And Me

I want to spend a couple minutes directing attention to this post of Ryan's, in which he attempts to defend the honor of the free market in the face of scurrilous attacks from, well, me. As a disclaimer, Ryan's a really bright guy, and he runs a great blog -- but this post happens to aptly illustrate a certain strain of thought I've been tangling with lately.

Anyone paying attention to this site will know I happily deviate from the orthodoxy favored by full-throated, anti-government, free marketeers. I routinely call for greater government intervention in health care, fret over Wal-Mart's monopsonistic might, and wonder, loudly and regularly, if the coming service economy can possibly sustain a decent society without government or union intervention. Katy bar the door!

In the post Ryan's referencing, however, I merely noted the illogic of the stock market cheering Republican elections despite doing historically better under Democrats. This spurred Ryan to write: "I don’t get this. What did the markets do to Ezra? There is a difference between being a Republican or a conservative and appreciating economics–often a very large one." Indeed there is. And it's terrifically unsettling that merely noting a political quirk within markets is enough to get one kicked out of the economics appreciation club.

There is, I think, little more beautiful or elegant in life than markets. Even Wal-Mart -- in fact, especially Wal-Mart -- is an awe-inspiring entity, gorgeously efficient and innovative and strong. But markets fail. As Ryan notes, there's a whole body of economic literature on when, why, and how that happens. And even a beautiful beast can attack if not watched and restrained. However, to note that markets have outcomes oriented towards ends not eternally or intrinsically constructive for society is somehow beyond the pale. To worry that the unceasing obsession for cost reductions by the greatest economic force in our age might harm labor standards and supplier autonomy somehow ejects you from polite company. Why?

No economist I know of would argue that the free market's primary incentive isn't profit. Few that I know of would argue that the quest for profit, at all times and conducted in all ways, benefits society. Indeed, it's a Harvard medical economist, Rashi Fein, who warned that "we live in a society, not an economy." It's a warning we may want to take a little more seriously.

There is nothing wrong with markets, but there is not everything right with them, either. Lord knows there's no more efficient way -- at least that we've thought of -- to conduct an advanced economy. But in an advanced society, or as some economists have called it, an affluent society, the common good should come before the bottom line.

That's a platitude, to be sure. What the common good is and when it transcends or conflicts with the hunt for profit is open for vigorous debate. But too often, the very act of entering that discussion, of questioning those priorities, of wondering whether H Lee Scott really has my best interests at heart and why corporate profits are skyrocketing while wages stagnate, too often such utterances are enough to close the discussion on grounds of insufficient appreciation for the awesomeness of markets. Too often, believing the interests of society are not only distinct from, but superior to, the unchecked will of the economy is considered a marginal, rather than obvious, idea.

There is, I think, a difference between appreciating economics and deifying it. Often a very large one. And often a very ignored one. I appreciate economics. I regularly interview economists, pore over articles in economic journals, and pick through reams of economic data. But I always try to retain perspective: As intellectually seductive and important as the discipline is, it is not an end in itself. Some -- like my libertarian friends -- may believe that it's pretty damn close, that the road to the good society runs through unchecked free markets. But many who disagree -- Ryan, I think, among them -- seem to forget that disagreement when a layman dares question the invisible hand's grip on society.

Saint H. Lee Scott

Taking on a topic I've been meaning to get to all week, my boss Harold Meyerson writes:

Wal-Mart...will shift to more environmentally responsible practices -- demanding greater mileage of its truck fleet and better packaging of its products. It will offer more affordable health insurance to its employees, cutting the monthly premium in some cases to just $11. It will monitor the environmental and health and safety practices of its foreign suppliers. And it will lobby for a higher federal minimum wage.

There's an interesting argument here as to whether these policy shifts are wholly positive advances or mediocre markers of progress that'll weaken the case for organizing Wal-Mart. The answer, probably, is both: Wal-mart's proposed insurance plans are sound and include both preventive and basic care that's sheltered from the deductible. Monitoring its foreign suppliers while decreasing its domestic environmental footprint is good news all around. And pressuring for a minimum wage hike is disingenuous, but positive: Wal-Mart pays slightly above the absurdly low minimum wage, and since many who shop at their stores are lower income, raising the bottom's paychecks by a buck or two will give them more money to spend at Wal-Mart stores while not forcing Wal-mart to offer out an extra cent.

The problem, however, is one of incentives. Wal-Mart does not want a wealthy, economically secure society. Back in the day, the auto companies had to pay their workers enough to buy their cars, which meant raising their living standards up to the middle class. All Wal-Mart has to do is lobby against poverty so abject that the working class can't shop at dirt cheap big box retailers selling Chinese goods. But they don't want their workers or low income Americans to move up income quintiles. Give them much more money and current Wal-Mart begin going to Target, Coscto, supermarkets, Amazon. For Wal-Mart, the incentive is a moderately poor society, always teetering on the edge of solvency and terrified of what news the bills will bring. In that context, Always Low Prices is the preeminent concern, and where Wal-Mart makes its goods, how they cut costs, and what they do to the economy is ignored.

Wal-Mart...Good?

Credit where it's due, Wal-Mart's done a damn good job on hurricane relief:

Wal-Mart's response to Katrina -- an unrivaled $20 million in cash donations, 1,500 truckloads of free merchandise, food for 100,000 meals and the promise of a job for every one of its displaced workers -- has turned the chain into an unexpected lifeline for much of the Southeast and earned it near-universal praise at a time when the company is struggling to burnish its image.

When it comes to Wal-Mart, I'm a cynic. But even if this was a play for positive headlines and media praise, it's still $20 million for relief, trucks packed with essentials, food, and jobs. Indeed, take a look at their preparations compared to FEMA's poor handling of the situation:

In Brookhaven, Miss., for example, where Wal-Mart operates a vast distribution center, the company had 45 trucks full of goods loaded and ready for delivery before Katrina made landfall. To keep operating near capacity, Wal-Mart secured a special line at a nearby gas station to ensure that its employees could make it to work.

I'm always struck by the irony of the "first CEO president" turning a markedly efficient federal government into an incompetently run, poorly led, and completely unprepared sluggard. A CEO, presumably, would know to appoint qualified individuals to head important agencies, they would know to fund the aspects of the company that guard against disaster, they would know to not overextend the corporation's resources while simultaneously cutting its revenues. Under Clinton, government shrank, revenues raised, the budget was balanced, and federal agencies became more responsive. Bush, through his aggressive incompetence, has made the organization he runs look totally pathetic compared to other large entities. Harvard Business School must be so proud.

Hitting Where It Hurts

By Ezra

So how about that Merck case?

Jurors deliberated more than 10 hours in Angleton, Texas, before awarding $24.4 million in actual damages and $229 million in punitive damages to the family of Robert Ernst. Shares of Merck, the third-largest U.S. drugmaker, fell to a six-month low, erasing $5.2 billion from the company's market value.

$229 million in punitive? As my girlfriend noted, this was a white male jury in Texas, for them to side so harshly against the company means bad things a-brewing for the drug industry. The damages aware were almost unquestionably excessive which makes them seem more like an expression of anger at Big Pharma (and maybe Big Business in general, particularly post-Enron) than anything else. And while it'll be reduced on appeal, if the environment has shifted in such a way that juries simply want to stick it to corporations, the slew of suits in the offing will give them plenty of chances to do so.

GM Begs

The best part of the unshockingly bold crony-captialism Matt ferrets out is that it won't work. GM is suffering from a cash flow problem in the same way I'm suffering from old age arthritis: it isn't. The company is still paying a stock dividend, their CEO still got a $2.5 million bonus this year, and they've got $20 billion in on-hand cash. The company's got money, the problem is nobody buys their cars. And that's not because of retiree health care costs or unions, it's because they make poor-quality automobiles that are totally unsuited for today's gas prices.

So GM, I'm sure, can get Congess to bail them out. But it won't do them any good. GM's problem isn't in their bank account, it's in their product line. Pumping up the former won't do them a damn bit of good; it's the latter that needs an overhaul. And they're going to have a hard time doing that with a furious workforce and congressional oversight. Reacting with cries for help, as they are, is so wholly pathetic, so obviously unsuited to the situation, that it's left me ashamed of my wimpy domestic ubercorporations. That's why I, for one, welcome our new Toyota overlords. Maybe they'll give us back some of that can-do American spirit.

Rarely is the Question Asked: Is Our Auto Industry Learning?

Watching Japan rocket past our auto industry was bad enough, but is China poised to follow suit?

they have initiated new fuel economy standards for cars and trucks sold in China. The first phase of the standards went into effect this year and range from 38 miles per gallon for the lightest cars to 19 miles per gallon for heavier trucks. In 2008, the standards will increase to 43 miles per gallon and 21 miles per gallon, respectively. Because the Chinese standards apply to each individual vehicle, rather than a vehicle class average as in the United States, American automakers may struggle to sell their vehicles, especially oil thirsty trucks, in the Chinese market. China is not stopping with efficiency requirements. They are also purchasing hybrids from abroad for immediate use and developing their own hybrid and fuel cell designs and manufacturing capabilities for the future.

If this goes as promised, American automakers may lose their ability to effectively compete in China's market, but Chinese automakers, powered by huge domestic demand and government investment, might get very good at building very cheap cars very quickly. If they're also able to develop top technology, they'll be a real force. Meanwhile, Ford is licensing hybrid technology from Toyota, GM is basically waiting for imaginary fuel cells, and the Japanese makers are perfecting their homegrown engines.

We're falling behind. Again.