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JOHN BALZAR

Deregulation Dementia

Entrusting the public interest to CEOs is nuts.

March 09, 2003|JOHN BALZAR

It was just a sentence, tucked away in a legal filing to the federal government. But it was eye-catching. The Texas energy company Reliant Resources Inc. was defending itself against California's accusations of market manipulation in the 2000-01 electricity crisis:

"We have heard enough," Reliant wrote, " ... to know that their claims rest largely on after-the-fact judgments of the way a better designed and differently regulated market would have performed."

Precisely.

Underline "regulated market." Put it on your bulletin board.

Those two words comprise the lesson we should have learned "after the fact" from those days when the lights went off. When schoolchildren sat in the dark. When small businesses had to close their doors and send employees home. When traffic signals went blank and we tore our hair out while we paid through the teeth.

The lesson is this: Regulation is essential to free enterprise. Deregulation unwinds the fastenings that hold it together. If you cannot see it that way by now, you're being stubborn.

Simply put, business cannot be expected to take care of its interests and the public interest. Won't happen. Never has. And we shouldn't presume it either. It's one of those fairy-tale theories, like the 1960s peace-and-love communes. It fails to account for basic questions: To wit, who is going to wash the dishes and clean up the mess?

Of all the things that make no sense in these topsy-turvy political days, it's the powerful momentum that still drives our hallucinogenic fever for deregulation.

Almost weekly, the Bush administration issues another deregulatory regulation. Recently, energy companies were given a stronger hand in deciding how to clean up the air pollution they produce. Really, does this make sense? They are willing to throw a state into crisis for quick profit, so we entrust them to make the air healthy?

Last week, the administration handed the chemical and pesticide industries a similar victory -- proposing to weaken the way in which toxic substances are screened for their cancer risk. Feel better yet? On Monday, the administration reportedly will publish regulations exempting the oil and gas industry from having to obtain pollution discharge permits at construction sites.

Self-regulation is the gooey stuff in a petri dish where trouble grows. Responsible leaders in business cannot and never will be able to survive the competition of corner-cutters. We all know that. The CEO who saves money by not upgrading pollution controls wins the bid over one who does. The Wall Street broker who offers free millions in IPO shares will get a CEO's business over a broker who does not.

Deregulation is supposed to benefit us. Almost everything that's happened in the last couple of years proves the opposite: Financial deregulation, communications deregulation, transportation deregulation, workplace deregulation -- our industries have wound up weaker and we're all worse off.

Greed, we say, fueled this costliest crime spree in our history, the ongoing scandals of corporate America. But what fuels greed? Deregulation. "Deregulation" is another word for "anything goes."

Where does this harebrained dogma come from? Some would say from Adam Smith, the 18th century author of "The Wealth of Nations." He championed the idea that free markets should answer to consumer demands. But that's not all he said. I keep within arm's reach of my keyboard another book by Smith, "The Theory of Moral Sentiments." Here is what he says about deregulation: "Sometimes the interest of particular orders of men who tyrannize the government, warp the positive laws of the country from what natural justice would prescribe."

Thank you, Mr. Smith.

Or let's take someone else from the past who is back in the news: Winston Churchill. President Bush is basking in the many comparisons between his own war leadership and Churchill's. So how about we listen to Churchill, the former prime minister of Britain's Conservative Party, about business regulation?

"We are for private enterprise," Churchill said, "with all its ingenuity, thrift and contrivance, and we believe it can flourish best within a strict and well-understood system of prevention and correction of abuses."

Thank you, Sir Winston.

Regulation is not socialism. It is a set of rules, nothing more. Regulation provides, to use the cliche, a level playing field. Conscientious business executives do not have to stoop to the dirty practices of those who would pump contaminants into the air or water for short-term gain. Or those who would fake power demands to drive up prices. Or those who would promote worthless stocks to inflate their bonuses. Regulation means that larcenous white-collar thugs won't be able to say, "Well, it was all legal, you know."

Again, to quote my new friends at Reliant: "We have heard enough."

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