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It's time for the rebirth of regulation

Robert Reich

TEXT OF COMMENTARY

Kai Ryssdal: If you work in the press offices at BP, Massey Energy, or Goldman Sachs this is what you might safely call a tricky time to be in corporate public relations. A

side from the obvious, commentator Robert Reich points out there's a more significant connection between those three companies and a long-term trend in Washington.


ROBERT REICH: BP's oil spill is already one of the biggest and most damaging in American history. Massey Energy's mine disaster is one of the worst on record. Goldman Sachs's alleged fraud is part of the largest financial meltdown in 75 years.

All three of these companies are publicly-held, which means that much of the financial costs of these failures will be passed on to their shareholders -- prominently among them, pension funds and mutual funds held by people like you and me.

Now that may seem fair. After all, it was pressure from shareholders seeking the highest possible returns that led all three companies to cut whatever corners they could cut in pursuit of profits.

But profits aren't everything, which is why we have regulations that are supposed to be enforced. So where were the regulators? Why didn't the Department of Interior's Minerals Management Service make sure offshore oil rigs have backup systems to prevent blowouts? Where was the Mine Safety and Health Administration before the Upper Big Branch mine exploded? Why didn't the Securities and Exchange Commission spot fraud on the Street when it was happening?

For 30 years now, deregulation has been all the rage in Washington. Even where regulations exist, Congress has set penalties so low that they've been treated as costs of doing business. And for years, enforcement budgets have been slashed, with the result that there are rarely enough inspectors to do the job. The assumption has been that markets know best, and when they don't civil lawsuits will deter wrongdoing.

Wrong.

When shareholders demand high returns and executive pay is linked to stock performance, companies will do whatever necessary to increase profits. And that can spell disaster unless the nation has tough regulations backed up by significant penalties.

After 30 years of deregulation, it's time for the rebirth of regulation: Not heavy-handed and unnecessarily costly regulation, but regulation that's up to the task of protecting the public from companies that will do almost anything to make a buck.

RYSSDAL: Robert Reich is a professor of public policy at the University of California, Berkeley.

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hmmmm. in the same issue of Foreign Affairs Ferguson also comments on the five painting series by Thomas Cole entitled "The Course of an Empire" which depites the overall life cycle of a great civilization from wilderness to greatness and back to wilderness.

The summary caption is "If the leadership of an empire refuses to embark on short-term pain to prevent a long-term massive disaster, then that empire deserves to collapse."

"Short term pain"?? hmmmmmmm. "Regulation maybe?"

ANd we're not talking about three black swans. we are talking about three examples of a continuing and lengthy series of made made catastrophies each one on its own capable of doing extreme damage to the world.

Alternate points of view are a good thing. but! in the face of overwhelming evidence -

Let's get on with the regulation.

What about all those European banks on the hook with debt from the PIGS? Has regulation happy Europe been slacking on the regulations?

Based on Mr Reich's sample of three black swan events that cover the breadth of business activity his keen UC Berkeley mind concludes that regulations, but "not heavy-handed and unnecessarily costly" ones, are the solution. Aside from his questionable inductive reasoning, how does he define not heavy-handed or unnecessarily costly?

The financial historian Niall Ferguson, writing in March/April Foreign Affairs, said blaming the recent financial crash on deregulation that began under Reagan is absurd. Market Place listeners should read his article for an alternate opinion.

Yes, but also business schools
must stress the importance of
the role of "captain of industry."

"Captain of industry" was a term originally used in the United Kingdom during the Industrial Revolution describing a business leader whose means of amassing a personal fortune contributes positively to the country in some way. This may have been through increased productivity, expansion of markets, providing more jobs, or acts of philanthropy. This contrasts with robber baron, a term used to describe a business leader using political means to achieve their ends."

We must have business leaders who
are "captains of industry" and
whose visions extends beyond
just maximizing profits.
Such leaders might model a great football coach such as Alabama's Paul "Bear" Bryant who played to win but also to protect, promote, and develop the game itself.

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