The majority of the intellectual leaders of the socialist movement…are socialists because socialism appears to them…as “science applied in clear awareness and with full insight to all fields of human activity.”…
Compared with the work of the engineer that of the merchant is in a sense much more “social,” that is, interwoven with the free activities of other people…. His special knowledge is almost entirely knowledge of particular circumstances of time or place…. But though this knowledge is not of a kind which can be formulated in generic propositions, or acquired once for all, and though in an age of Science it is for that reason regarded as knowledge of an inferior kind, it is for all practical purposes no less important than scientific knowledge…
…All we have said here is directed solely against a misuse of Science, not against the scientist in the special field where he is competent…. The main lesson at which we have arrived is indeed the same as that which one of the acutest students of scientific method has drawn…”the great lesson of humility which science teaches us, that we can never be omnipotent or omniscient, is the same as that of all great religions: man is not and never will be the god before whom he must bow down.”
–F. A. Hayek, The Counter-revolution of Science: Studies in the Abuse of Reason
Let scientists tell us about sciences. But government involves questions about the good for man, and justice, and what things are worth having at what price; and on these a scientific training gives a man’s opinion no added value.
If we are to be mothered, mother must know best…. In every age the men who want us under their thumb, if they have any sense, will put forward the particular pretension which the hopes and fears of that age render most potent. They “cash in.” It has been magic, it has been Christianity. Now it will certainly be science…
Let us not be deceived by phrases about “Man taking charge of his own destiny.” All that can really happen is that some men will take charge of the destiny of others…. The more completely we are planned the more powerful they will be.
–C. S. Lewis, “Willing Slaves of the Welfare State”
Honestly, I can think of more atrocious ideologies than socialism that are worth the taking the time to denounce. Ever try talking to a 5-point Calvinist? Talk about delusional! Their schizophrenic version of God has more personalities than Sybil and more faces than Eve! 😉
I’m no friend of Calvin, but Calvinism doesn’t rank as an “atrocious ideology.” The reason Marxism (the mother of all socialism) is atrocious is the murderous rampages conducted in its name. Putting Calvin in this category, even humorously, doesn’t work.
Socialism is a variant of the Marxist faith in the power of the state to transform society applied to culture. It doesn’t work either — as Europe is fast realizing.
This article about the Socialism made me think of a documentary I just saw on capitalism entitled “The Corporation” and the comparative morality of the two economic models.
Break it down for us Roger Ebert:
“The Corporation” .. begins with the unsettling information that, under the law, a corporation is not a thing but a person. The U.S. Supreme Court so ruled, in a decision based, bizarrely, on the 14th Amendment to the Constitution. That was the one that guaranteed former slaves equal rights. The court ruling meant corporations were given the rights of individuals in our society. They are free at last.
If Monsanto and WorldCom and Enron are indeed people, what kind of people are they? The movie asks Robert Hare, a consultant who helps the FBI profile its suspects. His diagnosis: Corporations by definition have a personality disorder and can be categorized as psychopathic. That is because they single-mindedly pursue their own wills and desires without any consideration for other people (or corporations) and without reference to conventional morality. They don’t act that way to be evil; it’s just, as the scorpion explained to the frog, that it’s in their nature.
..Although I was greatly cheered to see Ken Lay in handcuffs, I can believe he thinks he’s innocent. In corporate terms, he is: He was only doing his job in reflecting Enron’s psychopathic nature.
The movie assembles a laundry list of corporate sins: Bovine Growth Hormone, Agent Orange, marketing research on how to inspire children to nag their parents to buy products. It is in the interest of corporations to sell products, and therefore in their interest to have those products certified as safe, desirable and good for us. No one who knows anything about the assembly-line production of chickens would eat a non-organic chicken. Cows, which are vegetarians, have been fed processed animal protein, leading to the charming possibility that they can pass along mad cow disease. Farm-raised salmon contains mercury. And so on.
If corporations are maximizing profits by feeding strangelovian chemicals to unsuspecting animals, what are we to make of the U.S. Supreme Court decision that living organisms can be patented? Yes, strains of laboratory mice, cultures of bacteria, even bits of DNA, can now be privately owned.
Fascinated as I am by the labyrinthine reasoning by which stem cell research somehow violates the Right to Life, I have been waiting for opponents of stem cell research to attack the private ownership and patenting of actual living organisms, but I wait in vain. If there is one thing more sacred than the Right to Life, it is the corporation’s Right to Patent, Market and Exploit Life.
If I seem to have strayed from the abstract idea of a corporation, “The Corporation” does some straying itself. It produces saintly figures like Roy Anderson, CEO of Interface, the largest rug manufacturer in the world, who tells his fellow executives they are all “plundering” the globe and tries to move his corporation toward sustainable production. All living organisms on Earth are in decline, the documentary argues, mostly because corporations are stealing from the future to enrich themselves in the present.”
http://www.metacritic.com/video/titles/corporation
“In defense of the welfare state: The statistics had arrived on the Swedish prime minister’s desk that morning, his first day back at work after his summer vacation, cycling around the villages near his summer estate.
It was good news. Goran Persson, now in his ninth year of office, told me that the growth rate for this year will be near 3 percent and next year more than 3 percent – enough, he said, to maintain Sweden’s trajectory of the last decade, which was “above the average for the European Union” and, in particular, “as good as the Anglo-Saxons, Britain and the U.S.” (He admitted that he was referring to U.S. per capita growth, so as to discount the effect of its fast, immigrant-driven rise in population.)
This raised the first question – how does this self-confessed socialist state do it? What is the secret for success when Swedish taxes are the highest in the world and the welfare state is the country’s single largest employer? After all, when Persson came in as finance minister in 1994 the country was reeling economically, as state expenditures on the health and social sectors raced ahead of the country’s ability to generate wealth.
“If you have a free economy,” explained the prime minister, “a highly educated work force, a very healthy people, very high productivity and a sound environment then you can create the critical size of resources to create good growth.
“That has to be joined with adequate public financing of universities, research and development. As long as we are efficient and constantly challenging ourselves we continue to be productive.
“Then if we produce successful growth, the government gets the public’s support for high taxes. If the quality of the public sector is good, then a prosperous people will continue to vote for funding it.
..The U.S. is competitive, but not as competitive as we think. We are too self-critical in Europe, even though we have a much better social system and in Sweden are just as productive. On unemployment, it is overlooked that the U.S. has approaching two million people in jail and out of the labor market.”
International Herald Tribune http://www.iht.com/articles/2005/08/23/opinion/edpower.php#
Note 3 Accurate information about corporations from a lawyer with an economics degree.
Corporations are the favorite targets of the Left. Note 3 is crammed so full of misinformation and disceptive bias it is the intellectual equivalent of a ball of twisted yarn. I have practiced law for more than twenty years and I am co-owner of a small corporation that employss four people.
A corporation is a form of doing business. Already Dean has condemned corporations because as we know “business” is evil. Business may generate the material goods we need to live. Business may provide jobs for people to support their famliies. Business may generate the taxes that undoubtedly support most of the socialists in the United States, but, it is bad. It has to be, because it if wasnt “bad” then socialists couldn’t claim that they had a moral right to appropriate the product of business activity. But I digress.
In the United States you may do business as a solo proprietorship, a partnership or a corporation (there are some other rather obscure business forms that I won’t address here) Solo proprietorship means that the business is owned by a single human being. A partnership is generally owned by a fairly small collection of human beings. As a practical manner, it is difficult to run a business enterprise with more than 20 to 30 partners. I will grant you that there does exist some large law and accoutning firms with a high number of partners, sometimes as high as 100, but this is unusual.
The typical business starts as a solo proprietorship and if successful later becomes a corporation. If a business is successful if will need capital to acquire more machinery and hire more staff to meet a growing demand. Corporate ownership gives the business a way to raise money. The trans-continental railroads would not exist today, if America in the 19th century did not allow the creation of corporations. There was no single group of investors who could raise the vast sums of money necessary to build a railroad that cross the continental United States. After incorporation of the railroad company, thousands of small investors could buy stock in small quantities and help raise the necessary money. The success of the railroad was then shared with thousands of small shareholders in the form of dividends. Of course, the trans-continental railroad promoted the unification and growth of America. Dean teaches us that this was bad, evil, horrible, horrible, horrible.
Today a corporation allows a large number of people to own the same company, while still maintain a workable structure. If a product requires any kind of sophisticated manufacturing process, it was produced by a corporation. Do you enjoy using your cell phone? PC? Microwave? Car? All produced by corporations. All produced through very sophisticated manufacturing processes which required MASSIVE capital investment.
LEGAL STAUTS OF CORPORATIONS: Is the corporations a legal person. Yes, so is a decedent’s estate. So is a trust. If your grandmother died and someone in your family administered her estate, the estate itself was a legal person. If someone in your family created a trust to care for minor child, that trust was a legal person. According to Dean, this is horrible, horrible, horrible. Actually it is merely a convenience.
MEANING OF LEGAL PERSONHOOD: Designating an entity as a legal person means that it can be sued and it can sue. If you want to sue a corporation for something that you think it did wrong, you benefit from the fact that it is a legal person. Legal persons are subject to regulatory law. Regulatory law in the United States can fine a corporation and even shut it down permanently and seize its assets in criminal matters. Dean writing about the evil of treating a corporation as a legal person is nonsense.
DOING EVIL. If a business person wants to run his or her business unethically or even criminally, it can be done just as easily as a solo proprietorship or a partnership. A form of doing business is morally neutral, corporations are as corporations do. Just as a person is as a person does.
There are legitimate evils to fight in this world and attacking corporations as corporations is an uninformed waste of time.
Note3 Facts vs. Dean’s Hysteria from a lawyer with a degree in economics.
Dean contributes a lovely rant concerning corporations. It is the intellectual equivalent of a tangled ball of twine, nearly impossible to completely straighten out but it demands an answer. Here is the shortest reply I can produce.
CORPORATIONS ARE NOTHING MORE THAN A FORM OF BUSINESS STRUCTURE AND AS SUCH THEY ARE MORALLY NEUTRAL. In America, you can do business as a solo proprietorship (SP, a partnership(PRT) or a corporation (CORP). A SP has a single owner and there is no separate legal identity for the business. The owners of a PRT are the partners who are also the executives who make the important decisions about the business. As a practial matter, there are very few PRT with more than 20 partners because decision making with a large group like that is not very efficient. A corporation is owned by its shareholders who can number in the thousands, even millions. Most companies switch to corporate form when they become successful and want to expand.
There is nothing about the corporate form that makes it easier to engage in unethical or illegal conduct. If a solo proprietor or a group of partners wanted to engage in illegal or unethical conduct they could do so just as easily as any unethical owner or executive of a corporation. The form is ethically and morally neutral. Assertions to the contrary are the product of ill-informed hysteria.
YES, A CORPORATION IS A LEGAL PERSON, SO IS AN ESTATE AND A TRUST. A corporation is a legal person. The significance of this is that other people can then sue a corporation for redress in the civil courts and a prosecutor can file a criminal charge against a corporation. If a corporation were not a legal person, this would not be possible. Please note that when your grandmother died and your father administered her estate, the estate itself was a legal person. This allowed your family to transact business your grandmother could not transact before her death. A trust created by parents to care for a minor child in the event of their early death is also a legal person. Dean’s rant about the supposed evil concept of a corporation as a person, is ill-informed nonsense.
CORPORATIONS ARE SUBJECT TO DOUBLE TAXATION,CIVIL REGULATIONS AND CRIMINAL PROSECUTION. Corporations in America has subject to heavy taxation, civil regulatory bodies at the state and federal level as well as potential criminal prosecution. Corporations must accept double taxation of income. Corporate income is taxed after it is earned by the corporation, then, the same funds are taxed as dividends when that corporate income is paid out to shareholders. Solo proprietorships and partnership do not have this burden of double taxation.
Civil regulatory bodies have the power to fine a corporation and any of its officers, employees or agents.
They can also order a corporation to sell assets or to refrain from buying assets. Civil fines alone can effectively shut down a corporation. Criminal prosecutors can file criminal charges against a corporation as a legal entity and against its officers, agents, and employees. Criminal prosecutors can in many cases shut down a corporation, imprison its officers and confiscate the bulk of the corporate assets in criminal fines.
WHY CORPORATIONS ARE NECESSARY TO A MODERN SOCIETY. Corporations got their start in America when investors were looking for a way to finance the building of the trans-continental railroad. The primary advantage of corporate status is the company can raise large amounts of money through the sale of its ownership shares.There was no single investor or group of investors in 19th century America who could afford to raise the funds necessary to build trans-continental railways. The corporate form of doing business made this possible. Today, no corporation can raise the funds necessary to engage in sophisticated mass production of high technology products without a corporate form, that includes cars, TV’s, microwaves, and PC just for starters. You cannot have a modern economy of the kind we enjoy without corporations. Don’t like corporations? Throw away your PC.
BUSIENESS IS BAD, ISNT IT?. According to Dean, business is bad. Business may generate virtually all of the material wealth that we need to live, but it is bad. Business may supply the jobs that allow us to support our families, but it is bad. Business had to be bad, in by and itself, because if it were not bad, socialists could not “morally” appropriate the product of business activity.
LABELING BUSINESS AS BAD TAKES THE ONUS OFF INDIVIDUAL HUMAN BEINGS. Why do so many people like to label business as bad. Well, as noted earlier, it gives socialists the moral right to appropriate the product of someone else’s work. But, it alway steers society away from assiging moral responsibility to the individual, it works against assigning personal responsibilty for wrongdoing.
Note 7 Publicly Traded Corporations Are Subject to Intense Scrutiny
Publicly traded corporations must comply with SEC regulations and submit detailed reports on their activities and financial condition every year. These reports are available to the public and regulators of all kinds and prosecutors of all kinds.
Corporation law allows shareholders many rights simply by virtue of ownership of stock. Someone who owns only two shares of GM for instance still has the right to demand access to all sorts of records, reports and detailed financial data. Shareholders can sue if they believe that the executives are engaged in any kind of misconduct, on the rational theory that illegal conduct by the executives will damage the corporation.
Dean’s diatribe against corporations is truly sad. Corporations can into their own in the 19th Century. Does he propose their abolition? Does he want more regulation? I can already fill pages with the regulatory agencies that oversee corporate conduct on the state and federal level? This is the nature of Marxism, it is intellectual Ludditism. Marxism is a theory developed in the 19th Century and as you can see from Dean’s diatribe against corporations, he hasn’t left the 19th century. We are moving on Dean, law, science, technology and commerce. We are very, very far ahead of you, and it is to the good of humanity who now enjoys more material wealth and better health and better living conditions than every before. No Marxist has even been able to devise a means to increase material wealth, Marxist and socialists have only produced poverty and tyranny, but, they are never held to account for that.
Problems arise when a corporation defines it’s sole purpose and objective as the maximization of profits for the shareholders, which in fact many do. Such a narrow focus can encourage unethical and immoral behavior from financial fraud to product misinformation to environmental damage and devastation.
Just last week a Texas jury found for the plaintiff against Merck Pharmeceuticals in the Vioxx case. What influenced the jury was Merck’s repeated efforts to hide information regarding the cardiovascular risks of Vioxx and its systematic efforts to coerce and/or influence physicians into ignoring those risks. The verdict came in with punitive damages of $229m apparently estimated at the amount Merck estimated that it stood to lose “if new cardiovascular risk information on Vioxx’s label were to become effective in October 2001 instead of February 2002.” No doubt Merck’s efforts at deception were the result of a deliberate financial calculation and business strategy.
http://matthewholt.typepad.com/the_health_care_blog/2005/08/pharma_wsj_on_h.html
Certainly, Christian ethics do not discourage for-profit business. However they do require Christian business-persons to have a wider focus than “maximization of profits for the shareholders”. Christian business ethics elevate employees, customers and in certain situations, the community at large, into “stake-holders” of the corporation.
I will never forget reading about the death of the Chairman and CEO of Campbell Soups in 1988. He was a good man who always insisted on keeping a certain number of products on sale for the poor people buying soup, keeping unprofitable factories open until most of the employees could find new jobs, and donating to the communities in which his factories were located. In the article I read, a financial analyst was quoted as saying “People on Wall Street have been waiting for him to die for a long time”, because although Campbell Soups had always been profitable, now its profit margin could be raised even higher.
Note 8:Problems Arise When People Can’t Recognize that Different Parts of Society Have Different Functions
Dean writes: Problems arise when a corporation defines its sole purpose and objective as the maximization of profits for the shareholders.
No Dean, problems arise when people refuse to recognize that different organizations within society have different functions. We have many different types of entities operating in society, they include:
A) private non-profit institutions
B) private charitable institutions (charity being defined as giving away material goods)
C) private religious institutions, which may also act as charities
D) government agencies which may distribute tax dollars to the needy
E) government agencies which may use tax dollars for various purposes public purposes, including unemployment insurance for example.
F) private, for profit companies, whether incorporated or not
Problems arise then people CANNOT DISTINGUISH between the proper function and role of various organizations, businesses and agencies in America. It is enough that a private business use ethical business practices and obey the law. You want businesses to become SOCIAL WELFARE AGENCIES. This is imposing a duty on businesses for which they are not equipped. I have friends who are social workers and they will tell you that amateur social workers can do a great deal of harm.
EXAMPLE: If a company keep a UNPROFITABLE factory open until most employees could find new jobs, then, the financial reserves of the company are drawn down. In essence, the CEO was transferring business assets into SOCIAL WELFARE payments. By doing that he was violating his duty to the company. When he reduced the companies reserves he made it MORE LIKELY that the company would fail and even more people would lose their jobs. ESSENTIALLY, HE WAS PUTTING THE INTEREST OF A SMALL NUMBER OF EMPLOYEES ABOVE THE INTEREST OF ALL EMPLOYEES. There is no such thing as a free lunch, Dean, money comes from somewhere.
PROPER ASSIGNMENT OF RESPONSIBILITY: Companies should provide a competitive rate return on investment to their owners. This can only be achieved by producing a good or a service which consumers want to buy a price that consumers want to pay. IF they do this, they will promote the material well-being of society and provide steady employment for people. The corporation should follow ethical business practices and it should contribute to society by paying taxes on income and assets. The corporation should leave social work to the social workers, in the public or private sector.
FORCING BUSINESSES TO ACCEPT A LOWER RATE OF RETURN. Of course, Dean, you do know where money comes from. All of your socialist, redistribution schemes are based on the premise that the business owner will accept a lower rate of return. THAT DOESN’t Happen. What happens is that if your socialistic schemes depress the rate of return, CAPITAL LEAVES THE JURISDICTION. When capital leaves the jurisdiction the businesses shut down and no one has a job and there are no tax revenues. You keep hoping against reality, that capital will not move away, but, of course, it always does. It moves out of a city to another city, it moves out of a state to another, it moves out of a country to another country.
If you choose to provide social welfare benefits to workers at a factory rather than closing an unprofitable factory you are simply FAVORING ONE GROUP OF WORKERS OVER ANOTHER, since you are increasing the chances that the company will not do well as its resources are being invested in non-productive activities you are DISADVANTAGIN THE REMAINING WORKERS CHANGES OR REMAINING EMPLOYED.
NOte 7 Deans proposals always simply favor one group of people over another.
Dean’s proposals alway simply favor one group of supposedly needy people over another group of suppoedly needy people.
DEAN FAVORS MEXICAN ILLEGALS OVER UNSKILLED AMERICAN CITIZENS
When it comes to immigration Dean has decided that it the charitable and Christian position is to overlook illegal immigration and to help the poor people of Mexico working illegally here in the United States. All this does is favor one group of poor people over another. This policy clearly hurts unskilled workers in America. Unskilled American workers have to compete with illegal aliens who will work for less than minimum wage. So, Dean just has decided that if you are an illegal Mexican you are entitled to charity BUT if you are an unskilled American citizens trying to get work in agriculture, restaurants or motel/hotel TOUGH LUCK.
DEAN PREFERS WALMART EMPLOYEESS, WHO MAY OR MAY NOT BE NEEDY, OVER LOW INCOME CONSUMERS WHO SHOP AT WALMART
When it comes to wage and hour standards, Dean wants a high level of mandates wages and health benefits. Dean thinks that if he forces employers through legislation to pay their workers more, everything will be great. Employees will make less money and workers will make more. Now a socialist always things that he can FORCE a TRANSFER OF WEALTH FROM EMPLOYERS TO EMPLOYEES. You can’t. If labor costs go up employers will cut employement and find substitute technology; that is why there are no checkers at Walmart anymore. If for some reason employers could not cut employment, prices will go up. Now POOR PEOPLE SHOP AT WALMART. Dean has simply decided that he PREFERS TO USE GOVERNMENT POWER TO HELP A FEW LOW SKILLED EMPLOYEES AT THE COST OF HIGHER PRICES FOR POOR SHOPPERS. Investors will not accept a lower rate of return, they will move out of the jurisdiction or out of the industry. When that happens, all jobs are lost and all tax revenues go away.
DEAN WANTS BUSINESSES RUN LIKE SOCIAL WELFARE AGENCIES WHICH WILL DECREASE PROSPERITY, JOBS AND TAX COLLECTIONS
Businesses should obey the law, produce a valuable product the people want to buy and provide a competitive rate of return on the investment. By doing so, they will be doing enough good, they will be generating material wealth, providing jobs and paying taxes. That is enough.
Dean said, “Problems arise when a corporation defines its sole purpose and objective as the maximization of profits for the shareholders.”
As a strategy, ‘shareholder maximization’ has been and will continue to be a blind alley. Probably not for the reasons that Dean envisions, but may be so. ‘Shareholder maximization’ has contributed to a short-sighted view of business. It has encouraged the rampant lying and cheating revealed in Enron and MCI. It has encouraged CEOs to cut costs and elminate jobs as a quick fix, rather than focus on innovation and expansion. It has caused companies to market unsafe products, in the hopes that ‘someone else will be in charge and my stock options will have matured’ before the truth comes out.
The CFO of Alcoa one approved the issuance of over $1 billion in zero coupon securites. The WSJ asked him how the company would ever pay that back. He replied that he was due to retire next year, and the bonds wouldn’t mature until 20 years from now. That’s ‘shareholder maximization.’ Current management and current shareholders get a pop based on unsustainable numbers that are inflated by mortgaging the future.
I have no problem with for-profit enterprise. I didn’t go to business school to lose money. However, the idea prevelent in business that ‘maximizing shareholder value’ is a license to lie, cheat, and steal is just plain wrong. It’s wrong morally, and it’s wrong from a business perspective.
I am against corporate contributions to charity. That is theft of shareholder capital. Excess earnings should be re-invested or paid as dividends to the owners. I am against corporations being forced to take on welfare aspects. However, it is equally wrong to turn a blind eye to corruption masquarading as business. There is little the government can do about most of this, of course, as it is really up to shareholders to invest wisely, and for Christians to raise the overall ethical bar in society. Government can only put those in jail that actually break the law. There is a lot of room to do the wrong thing that still stays within the bounds of law.
Note 11. Enron’s downfall was GAAP violation
The principle of maximizing shareholder value was not the cause of Enron’s downfall. The downfall of Enron was Andy Fastow, Chief Financial Officer (CFO) and everyone who let Andy Fastow get away with illegal conduct. Arthur Anderson (AA)should have blown the whistle but failued in its duty as auditor of the company. Next in line was Ken Lay for either going along with Fastow or criminal negligence for failing to stop Fastow.
Andy Fastow was the CFO of Enron, one of the two or three top people in the company. He was a crook. Period. First, he violated GAAP by capitalizing a speculative flow of future income. Arthur Anderson let him do that. The reason Arthur Anderson let Fastow do this was that AA was BOTH Enron’s auditor AND Enron’s consultant. AA should have acted indepedently as an auditor but it did not because it did not want to jeopardize its fat consulting contract. In many words, the corruption and destruction of AA was a bigger story than Enron’s demise, because for so long AA stood for the utmost in business ethics. No more.
This is what Fastow did. Enron would enter into a contract for energy futures of some kind which extended over ten years. Then Fastow would assume that the contract would produce X dollars in profits every year for the next ten years in the future. this is ludicrous because there nothing more speculative than energy futures. Then Fastow would “capitalize” this stream of income, put a present value on it. This would have been correct with insurance annuities or Treasury bills but not with speculative energy futures contracts. So now Fastow adds a big financial asset to his balance sheet which makes the company APPEAR more solvent than it is. AA signed off on this, they should have blown the whistle as it clearly violated GAAP. GAAP stands for “generally accepted accounting principles.” GAAP guidelines are the Bible of the accounting and financial world. It is the job of an auditor to act independently of the CFO and give assurance to outsiders that the books are legit. AA failed to do this.
Fastow was insane. He lost all sense of proportion. He created off-shore companies and named himself head of the companies. He then got involved in transactions between Enron and those off-shore companies. This is a totally illegal conflict of interest for the CFO. It violate the Uniform Corporation Code. The Board of Directors relieved Fastow of the duty to avoid conflicts of interest. I don’t fully understand why they did that. In any event, AA knew all about this and did nothing, never blew the whistle as was their duty as auditors.
Eventually the house of cards fell, Enron was not making a profit it was hemorrhaging money and phony assets on the books couldn’t hide that.
NOte 13 Remember the Red Cross scandal
About 3 years ago it was discovered by the public that one of the top Red Cross regional executives was being paid over $3 million dollars in yearly salary. He had an office staff of about 25 people. He was, at best, a mid-level executive. A comparable private sector salary might have been $80 to $120 thousand.
There was no “maximization of shareholder value” to point to as the “cause” of this corruption. There was no “profit motive” to point to either. It was plain old greed and old boy collusion in strip-mining the organization. Greed is usually the most accurate and concise “root cause” of any financial misconduct. Greed is potentially present whenever there is a human with a heartbeat in the room.
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Missourian: In No. 12 you provided the clearest and most succinct description of the Enron scandal I have ever read. Great job! I would have responded sooner but I just returned from a long weekend away.
The real question is when do Christain ethics direct us to forego profit, and I think there is still much gray area worthy of discussion.
Suppose you are the investment manager for a Church endowment or pension-fund and you are directed by your Board to obtain the highest possible return for the fund and it’s beneficiaries.
As you scan the investment returns of various mutual fund companies you read about the SIN Fund, (which invests in companies that operate casinos, make pornographic videos, and sell tobacco-products, condoms, alcoholic beverages and cheap-handguns) and the ANGEL Fund, (which invests in hospitals, family-oriented media, community redevelopment, organically-grown food distributors, and clean, non-polluting alternative energy sources).
The SIN fund has a five-year average annual return of 14%, the highest of all the funds you looked at, while the ANGEL fund has a five-year average annual return of 8%. Where should a Christian investment manager invest? BTW, I just read about a similar situation in the Sunday Business section a few weeks ago.
Dean, unfortunately, the ability to choose one’s investments for ethical reasons is not easy. The most difficult part is finding out what the companies actually do–Phillip Morris for instance owns Kraft Foods, etc. One also has to have a criteria for the ethics, do you include employment practices and over-all coporate involvement for instance or only the type of product or service they render?
Combine this with the fact that most stock analysts, brokers and money managers couldn’t care less, you have to develop you own expertise and management skills.
To be fair we should acknowlege that a pure capitalist economic model isn’t compatible with Christian ethics either. Some human needs are considered too vital and essential to be completely assigned to the free market to provide. For example we don’t privatize the water supply, because our experience with cholera and typhoid in the 19th century taught us that the availability of clean water is too important to be left to private markets.
Where the need for a product is inelastic, that is people cannot choose to go without it, and private entities have the ability to monopolize owenership of the supply, the potential for abusive pricing and suffering exists. Competition doesn’t always operate to lower prices and increase supply when commerical interests find they can generate more profit through informal cooperative and collusive arrangements.
I happened to be sitting at the dinner table with my family on several occasions during the winter of 2000/2001 when our electricity went off. Later it was revealed that California energy companies were creating artifical shortages to drive up prices and had even given these schemes nick-names, and Enron executive were caught on tape joking about how they were sticking it to “Grandma Millie” in California.
Likewise health care may be another market ill-suited to the free market. Health care strategist Matthew Holt writes, “First, Merck’s malfeasance amply illustrates an argument I have made elsewhere …the Bush/Right Wing goal of an unregulated market for pharmaceuticals and most other aspects of healthcare remains delusional. Contrary to hosannas from market true believers, sick people either lack the time or the repose to make rational, profit-maximizing choices. Even if they possess such detachment, the asymmetry of information operating against them militates against rational, well informed choices. Moreover, consumers-patients have no idea of the bundled cascade of services or costs that follow from their choice of, say, a doctor or a hospital.”
http://matthewholt.typepad.com/the_health_care_blog/
The US health care system is in slow motion collapse, and free-market solutions are only exacerbating it’s problems. The number of uninsured Americans rose to 45.8 million in 2004, up from 45 million in 2003, while the percentage held at 15.7%, according to U.S. Census Bureau data. Employment-based health insurance continued a decline that started at the turn of the century, but state and federal programs picked up the slack. Some 59.8% of Americans had employment-based insurance in 2004, down from 60.4% in 2003, while 27.2% had government coverage, up from 26.6%.
It is inevitable that we will enact universal health care in the United States sometime in the next 10-20 years.
A poltical party that champions conservative economic policies has been in power for over four years. How have they done? Let’s check today’s papers.
“U.S. Poverty Rate Rises to 12.7 Percent, By THE ASSOCIATED PRESS
WASHINGTON (AP) — The nation’s poverty rate rose to 12.7 percent of the population last year, the fourth consecutive annual increase, the Census Bureau said Tuesday.
The percentage of people without health insurance did not change.
Overall, there were 37 million people living in poverty, up 1.1 million people from 2003.
Asians were the only ethnic group to show a decline in poverty — from 11.8 percent in 2003 to 9.8 percent last year. The poverty rate among the elderly declined as well, from 10.2 percent in 2003 to 9.8 percent last year.
The last decline in overall poverty was in 2000, when 31.1 million people lived under the threshold — 11.3 percent of the population. Since then, the poverty rate has increased steadily from 11.7 percent in 2001, when the economy slipped into recession, to 12.5 percent in 2003.
The number of people without health insurance grew from 45 million to 45.8 million. At the same time, the number of people with health insurance coverage grew by 2 million last year.
Charles Nelson, an assistant division chief at the Census Bureau, said the percentage of uninsured remained steady because of an ”increase in government coverage, notably Medicaid and the state children’s health insurance program, that offset a decline in employment-based coverage.”
..Tim Smeeding, an economics professor at the Maxwell School of Syracuse University, says the nation has experienced a shift from earnings income to capital income and capital gains, which aren’t reflected in the Census Bureau’s latest numbers.
”Most of that growth in the economy over the last couple of years has gone to higher income people and has taken the form of capital income — interest, rents, dividends,” Smeeding said.
New York Times