Greetings from a newcomer to Daily Kos. From my vantage point, this community and others like it are breathing life back into our democracy; I look forward to joining the dialogue. Hopefully some California readers already know me as the senator who led the investigation into Enron's manipulation of our energy markets. For the rest of you, let this post be my introduction.
Today I want to draw attention to a subject that deserves more attention in progressive circles than it gets: the Politics of Capital.
Sounds wonkish, I know, but stay with me. When I use that phrase, I'm focused on the massive investment power wielded by those who control the hundreds of billions of dollars residing in public employee and other large pension funds. A small, progressive core of these officials - state treasurers, controllers and pension fund managers - are quietly but effectively starting to use their market influence to promote values sorely lacking in the American economy: transparency, integrity and fairness.
Why should we care? Well, I wish the cancerous lack of accountability in American big business passed away with Enron and WorldCom. But of course it didn't. It remains a drag on our economy, our retirement portfolios, and the rights of U.S. workers and consumers today.
We all know the Bush Administration won't check the excesses of corporate America. As Elliot Spitzer and other reformers have found out the past few years, the very federal agencies designed to defend the public interest are too often operating as one of the biggest obstacles to integrity in the marketplace. That means it's up to progressives to play the vital role of enforcing the boundaries of appropriate business behavior. And with defenders of the accountability-free status quo in charge of all three federal branches, we've got to grab hold of every lever of power available to us.
This thinking is what motivates much of my work in the CA senate, and I know it's what motivates some of these "investor activists" I want to applaud. Supreme Court Justice Louis Brandeis, an early progressive, drew a line between faith in a "market economy" and faith in a "market society" (more on this in a later post). This is a vital distinction to understand and embrace: people are NOT simply another commodity to be left to the whim of market forces. I hope our progressive community - officeholders and grassroots alike - starts to sink its teeth into these ideas:
1) The culture of corporate America matters.
2) We have the power to change that culture for the better.
3) Success won't come without an understanding of the battlefield and a willingness to fight. In fact, Gov. Schwarzenegger has launched a stealth attack on this front already.
The culture of corporate America matters.
This point shouldn't take much convincing. Open up the Wall Street Journal or your business section any day of the week, and you'll find it splashed with episodes of corporate fraud - whether it's another accounting scandal, a refusal to disclose harmful medical side-effects or the exploitation of emasculated environmental rules. The bottom line about these scandals is that their impact is widespread. Absolutely, we should be angry when unsuspecting consumers get harmed, and when individual investors get fleeced. But we should also point out that honest business players get hurt too; they lose access to capital and have trouble competing. And, while you'd never know it listening to the U.S. Chamber of Commerce, the broader economy suffers greatly as well. When the boundaries of business behavior aren't enforced, and corporate America gets caught up in a race to the ethical bottom, precious capital gets misallocated to undeserving companies, and our ability to sustain economic growth is threatened as a result.
We have the power to change that culture for the better.
Let me give you just a few examples. New York's comptroller (and pension fund investor) Alan Hevesi spearheaded lawsuits in the WorldCom case that have recovered over $6 billion for investors, including a settlement with WorldCom directors that forced them to pay $20 million out of their own pockets. (I noticed DavidNYC has tracked this story here.) And Hevesi's work had an impact - the initial WorldCom director announcement was followed up by former Enron directors agreeing to pay $13 million of their own. Believe me folks, this news will have an effect on the ethos in corporate boardrooms. As Hevesi said at the time, "The job of directors is to be a fiduciary on behalf of shareholders, to demand documents, to ask tough questions of management. We believe this settlement will empower directors to do this."
Our state treasurer Phil Angelides, a reformer galvanized by watching California retirement funds lose $1B in the Enron and WorldCom debacles alone, has committed his tenure to using the "power of the purse" to advocate for more corporate responsibility. He's successfully imposed requirements on investment banks to increase disclosure and eliminate conflicts of interest before they can do business with our state. And in one of his more high-profile moves, Angelides was among the first to call out NYSE president Richard Grasso on his exorbitant compensation package. Days later Grasso resigned.
We have to understand the battlefield. We have to fight.
Even though this group of reformers is just beginning to organize and assert their power, the radical right is keenly aware of its potential. And they're alarmed by it. Grover Norquist has said of public pension funds: "Just 115 people control $1 trillion in these funds...We want to take that power and destroy it." Then there's Stephen Moore: "The witch-hunt against corporate excess and corporate accounting scandals [is] all the rage on the left these days."
Unfortunately, here in California, Gov. Schwarzenegger has signed on to their corporatist movement. He's launched a bid to overhaul our state's public pension system, which he wants to put directly before the voters on a special November 2005 ballot. Of course, he's pitching it as an innocuous drive to reduce administrative costs. And the California media has basically bought that shallow angle. But we see through it. We know what's really on the table this fall is one prong of a nation-wide attempt by the "starve the beast" ideologues to strip our corporate reform movement of a powerful lever. They calculate that if they can disaggregate pension investment capital among millions of small investors ... well, that's just one less force for accountability for them to deal with.
This month, through my work in the CA Senate budget subcommittee, I've been fighting to make Governor Schwarzenegger accountable by demanding details of his hollow plan to "reform" California's public pension system. My demands have been met by a deafening silence. The bottom line: Schwarzenegger has no details because to him and his allies, the details don't matter. They've measured up the pension funds' power to force reform, and now they simply want to "destroy it."
Looking ahead, we're going to have a long-term struggle on our hands. As Spitzer has reminded us (and Digby has smartly picked up on), the right loves to cloak itself in the language of the free market, when in reality the leaders of American big business are hard at work against competition, transparency and accountability. It's only progressives who understand the market - who understand that only the government can ensure the economy operates on the basis of integrity and fair play - that can fight back against this special interest propaganda.
This much I know - if Arnold follows through with this proposal on the November 2005 ballot, you'll be hearing me (and I hope other CA progressives) shouting from the rooftops, trying to get the public to see the "Politics of Capital" in the right frame. I look forward to finding some partners in this community as that battle draws near.
Until next time,
Joe Dunn