KAMISCHKE: Behaving nicely should be a business standard

Conservative and tea party groups have elevated capitalism to an exalted status, confusing it with concepts like democracy and freedom. As a result, regulation is seen as an assault on American values.
Nov 1, 2013

Whether this view of capitalism comes from ignorance or conviction, it’s naive and misguided.

Let’s first agree that free markets and capitalism were never designed to improve society as a whole. After all, capitalism is built on individual self-interest; society was never part of the equation.

Milton Friedman, a conservative economist and a Nobel Prize winner, wrote a now classic article for the New York Times Magazine titled, "The Social Responsibility of Business is to Increase its Profits." Friedman made it very clear that the sole job of corporate leaders is to make money for the stockholders. Spending money on areas deemed socially good, but not required by law, is nothing less than defrauding the owners.

So, even when a business decision is socially harmful — hiring only part-time workers, reducing medical benefits, moving production to China, or paying less than a living wage — if it improves the bottom line and it’s legal, it should be done.

Of course, not all business owners feel like Friedman, but it’s useful to know that many do. And it is also important to understand that, besides being uninterested in contributing to society’s well-being, many companies have shifted costs to society — that’s you and me.

Before regulation, for example, our local tannery dumped waste chemicals in the river. Their ledgers showed no cost for disposal; however, communities near the tannery were left with a poisoned river, increased illness and health care costs, and perhaps lower life expectancy. Eagle Ottawa effectively transferred the cost of proper waste disposal to surrounding communities.

When the steel mills in Gary, Ind., made the air semi-opaque, their ledger showed no cost for the treatment of allergies, asthma, infections, emphysema and other diseases suffered by Gary residents. Before mining regulations, coal miners were disabled or killed by black lung disease and cave-ins because losing a miner was cheaper than investing in mine safety.

Did bottlers worry about their empty aluminum and plastic containers that littered our roadside and landfills? Nope. Someone else paid that cost.

Many Superfund sites represent businesses that walked away from an environmental disaster of their own making, leaving it to the rest of us to pay the clean-up tab.

Older adults will probably remember examples of regulations that were imposed because industrial accidents cost workers their limbs and their lives; because mills were bringing young children into industrial environments to save labor costs; because food and drug providers were less than scrupulous about animal cruelty, sanitation, labeling and benefit claims; because some companies became monopolies and set prices that a competitive company could never demand. This is all old news and should come as no surprise to anyone, so why are some people now presenting unregulated capitalism as sacred and a symbol for American values?

One of the most flagrant cases of selfish capitalism that disregarded the well-being of the entire country, even the world, occurred on Wall Street just a few years ago. While traders made billions selling subprime mortgages and their companies were shored up later by government funds, the country and the world fell into the worst financial decline since the Great Depression. As these companies profited from creating unworthy investments, pension funds and families lost their savings.

Few, if any, traders involved with subprime mortgages have come forward to express regret, and Wall Street firms have done little to avoid another disaster if the right conditions occur. Expecting brokers and investment firms to voluntarily protect society would be to ignore history.

Unfortunately, one outcome of pure capitalism is that those who act irresponsibly are rewarded with lower costs and greater profits, putting those who act in the community’s interests at a disadvantage. Whenever there is a payout for doing the wrong thing, something is amiss. Enacting regulations fixes this problem by creating conditions that ensure all competitors operate and deliver products and services within a minimum standard.

As a capitalist myself, I can imagine there are useless, redundant, outdated and costly regulations; but cries for deregulation are rarely specific enough to identify them. Hence, tea party organizations treat all government regulations as a reason to “take our country back!”

I suspect that those pushing the hardest for deregulation and labeling others as socialists and communists are just capitalists doing what they do best: looking after their own interests. If the tea party actually gets the world they seek, it wouldn’t be long before they want to “take their regulations back!”

Does anyone want to bet that, if regulations were removed, all capitalists would behave nicely? No, I didn’t think so.

— By Richard Kamischke, Tribune community columnist
 

Comments

Vladtheimp

The Tea Party and conservatives do not equate capitalism with Democracy and Freedom; they argue that Government and taxation to feed it have become too large, diminishing liberty and freedom, so Kamischke's premise is faulty - a made up straw man to support his screed against business and capitalism. Nonetheless, to play his game let's take the diametric opposite of Capitalism - Communism, the final evolution of socialism, where Government is supreme.

Having no capitalists to bugger up their utopia, one would expect that North Korea, Cuba, the People's Republic of China, and the former Soviet Union would be worker's paradises, where everyone is paid a living wage by the State, air and water are clean and pure. There would be less illness and longer life expectancy; government run industry would not cause allergies, asthma, infections, emphysema and other diseases and coal miners would not be disabled or killed by black lung disease and cave-ins.

There would be no child labor, no environmental superfund-like sites, and everyone would be able to sing Kumbaya with the Dear Leader as they happily work and play in the workers paradise created by the Government - and health care, why, it would be top of the line and available to everyone equally. Of course, history tells us differently as brilliantly explained by the real Milton Friedman, not the one taken out of context, in this famous interview: http://youtu.be/RWsx1X8PV_A.

This article is so much bunk - would anyone prefer to live in the socialist/communist paradises of North Korea, China, or Cuba than in the free society in which we are blessed to live? That's the direction Obama wants to take us. Look up the statistics regarding income, life expectancy, environmental conditions, health etc. in the countries in which government controls every aspect of life, and compare them with what we have.

Finally, Kamischke dishonestly brings up the subprime mortgage mess as an example of capitalists gone wild when he must know that the sordid history of subprime mortgages was caused by government regulation under the democrat Community Reinvestment Act that forced bankers to ignore normal credit ratings and give mortgages to folks who could never pay them back, with the government entities Fannie Mae and Freddy Mac encouraging more subprime sales by purchasing roughly half of all CRA home loans, most carrying subprime features. This causation by the government was shown in a recent study by the respected National Bureau of Economic Research. http://news.investors.com/ibd-ed...

It's unfortunate that Kamischke, who portrays himself as non partisan and is a founder of the so-called "The West Michigan Civil Conversations Project" misrepresents the views of the Tea Party and Milton Friedman, and misrepresents the primary role of the Government in the subprime mortgage debacle, in order to slander Capitalism. Those "Civil Conversations" must have been quite a spectacle.

Since Kamsichke is so enamored of Milton Friedman quotes, I'' provide another:

"If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand."

As far as "behaving nicely" does that include lying - "“We will keep this promise to the American people. If you like your doctor you will be able to keep your doctor. Period. If you like your healthcare plan, you will be able to keep your healthcare plan. Period.” [Barack Hussein Obama ]?

The Guy

I was going to write a rebuttal to Richard's article, but I in no way could do better than Vlad's rebuttal. I would however like to just submit this, I was always told the best way to convince people of your point of view all you have to do is present your positive facts, if at anytime you have to resort to juvenile tactics such as name calling or raising your voice you probably have no valid points to convince so one resorts to attacking, sarcasm and cynicism. I will stop there and ask Mr. K if he would be so kind as to refrain from categorizing people's in groups when he doesn't understand said groups nor does he understand his own points.

Tri-cities realist

I'll take my chances with everyone looking out for themselves. If everyone did this, and all were successful, then society as a whole would be much better off. Or we can shirk our personal responsibilities, and rely on others (through govt redistribution). Take your pick.

Mystic Michael

So those are the only two scenarios that are possible? Either complete anarchy - or complete submission to the state? That's it? Brilliant.

When everyone looks out only for themselves, then the strong prey upon the weak, and the privileged exploit the disadvantaged. It's a pure "might makes right" world - with no room for justice, or even morals.

Seems to me that humanity has already been there before - many times. It didn't work out so well (see: totalitarianism, genocide).

No thanks. I'll take my chances with democracy & civilization.

Tri-cities realist

So you criticize a mischaracterized form of capitalism, but you didn't do the same for socialism or communism. Hmm, I wonder why. Seems your true colors shine through again. I don't advocate anarchy, just free markets. Do you support complete submission to the state? I assume not, but could be mistaken. So instead of providing only 2 choices, my intent was to ask in which direction we should go, more govt regulations, or less? I apologize for my lack of clarity.

Will you admit that free markets are self regulating, in that the bad apples are weeded out by consumers? Or is govt regulation the only way?

Mystic Michael

Nobody's talking about Socialism or Communism. That's a complete red herring, and you know it.

My take on "free-market capitalism" is akin to Gandhi's reply when asked what he thought of western civilization: "I think that would be a very good idea".

The "free market" seems a very good thing - in principle. But it doesn't exist in today's world - if it ever really did. What we have in its place is a system of good old boy crony capitalism, in which money & power talks, the playing field is dramatically slanted, laws and regulations are written for the benefit of the already wealthy & powerful, and good ideas for innovative new products & services are routinely killed - purely because they would disrupt the prevailing industries, and the profit margins of those who stand to make the most from the status quo. It's the reason why the anti-trust laws were written - during the previous Age of the Robber Barons...and why today's plutocrats fight against ANY form of regulation with such fierceness.

I'm not saying that there is no innovation, nor new industries being formed. Just that it doesn't happen nearly as often as it could - or should. Even so, the big corporations soon get their hooks into it. Just look at the efforts of the big ISPs & telecoms (Comcast, AT&T, Verizon, Time-Warner, etc) to kill Net neutrality and control the Internet for themselves.

An economy is like an ecosystem: Disrupt one element, and the entire system becomes unstable. Kill the coyotes, and the prairie dog population explodes. Stop the chemotherapy, and watch the cancer come back. Cripple the SEC and FINRA and the OTS, and the subsequent Wall Street feeding frenzy nearly kills the entire economy.

In all things there must be balance - in this case, balance between free enterprise and public regulation. This balance has been disrupted and distorted from more than 30 years of reckless, irresponsible deregulation, at the behest of corporate lobbyists with piles of cash to throw around. Today's extreme wealth disparity and dead-end job market are just two of the direct results. Big business has proven, time and again, that it will not do the right thing, simply because it is the right thing. Had it been otherwise, we would have seen the evidence of it by now.

It has to stop. The 99% of us deserve a chance for a real life with real opportunity too.

Lanivan

Once again, Richard, thank you for bringing a crucially important multi-layered op-ed to the forum.

As one would expect in a capitalist environment, follow the money. The Tea Party and deregulation are joined at the hip - particularly the bulging hips of the Koch Bros. (musical background while reading.....http://www.youtube.com/watch?v=9...)

A new academic study confirms that front groups with longstanding ties to the tobacco industry and the billionaire Koch brothers planned the formation of the Tea Party movement more than a decade before it exploded onto the U.S. political scene.

In 2002, the Koch's and tobacco-backed CSE designed and made public the first Tea Party Movement website under the web address www.usteaparty.com.

Essentially, what we have here is the Koch Bros, who own the 2nd largest private multinational US corporation originating, creating, and funding the Tea Party, and using it as a pawn with little interest in fighting for the rights of the common person, but instead using the common person to fight for their own unfettered profits.

Now - Join this to the hips of deregulation. Koch Industries ranks in the "Top 10" list of the 100 most toxic air polluting corporations in the US.

To further the connection, the Koch Family Foundation founded and contributed $30 million to the George Mason University to create the Mercatus Center, a think tank specializing in deregulation - it has been described as the "ground zero for deregulation policy in Washington". Also contributing to the Mercatus Center are the NFIB, and the corporate bill mill, ALEC.

Talk about cancellous tissue!

As for the sub-prime crisis: The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most sub-prime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the sub-prime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

Keep in mind that the Bush administration has been weakening CRA enforcement and the law’s reach since the day it took office. The CRA was at its strongest in the 1990s, under the Clinton administration, a period when sub-prime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks. The Federal Reserve, too, did nothing but encourage the wild west of lending in recent years. It wasn’t until the middle of 2007 that the Fed decided it was time to crack down on abusive practices in the sub-prime lending market. Oops.

Better targets for blame in government circles might be the 2000 law which ensured that credit default swaps would remain unregulated, the SEC’s puzzling 2004 decision to allow the largest brokerage firms to borrow upwards of 30 times their capital and that same agency’s failure to oversee those brokerage firms in subsequent years as many gorged on subprime debt.

http://www.businessweek.com/inve...

Vladtheimp

Read the study; I can give you others if you are interested (Hah). Halloween is over - you can give up your Koch Brothers scary masks.

Mystic Michael

The Koch Brothers are scary enough as it is - without any exaggeration needed. Anybody who's in the know realizes that. Robber barons for the 21st Century.

Lanivan

I read your study. There are many others that refute the argument that the CRA had a primary role in the subprime mortgage debacle. For instance, law professor David Min argues that view (blaming GSE's and CRA) "is clearly contradicted by the facts", namely that

a.) Parallel bubble-bust cycles occurred outside of the residential housing markets (for example, in commercial real estate and consumer credit).
b.) Parallel financial crises struck other countries, which did not have analogous affordable housing policies.
c.) The U.S. government’s market share of home mortgages was actually declining precipitously during the housing bubble of the 2000s. Wiki

Of course, it stands to reason that those who leap to the conclusion that government is the culprit for every catastrophe will find the CRA an easy target, but it really doesn't hold up to scrutiny.

The absence of the Koch Bros in a discussion regarding the Tea Party and deregulation is like talking about Obamacare and leaving out the fact that it is based on a Republican plan. The Koch Bros and Koch Industries are major drivers of the deregulation movement, beginning in the 60's, and the formation of the Tea Party, the social/political hybrid whose principle role is to vote the most advantageous politician into office that can do the most damage - ala Ted Cruz, for example.

Brilliant, in a Machiavellian way.

Vladtheimp

Here's a more nuanced article from Forbes http://www.forbes.com/2009/02/13...

The liberal philosophy is adequately described by Clinton thinking that he can force banks to give mortgage loans to people with lousy credit and there will be no impact on the banking community, and Barack Obama thinking he can add 40 million formerly uninsured people, most of whom didn't want it or couldn't afford it yet still received excellent health CARE, set unreasonable standards for health insurance, redistribute wealth from the workers to the others,and not add to the numbers of doctors and health care workers in the country and not adversely impact the health insurance market - all Unicorn Farts!

Tri-cities realist

Since you are a centrist, I'd love to see the same detailed analysis of George Soros, I must have missed that one.

Lanivan

Should the opportunity arise, I'd love to check into George Soros, but that will have to wait for another day.....this discussion is about the Tea Party, deregulation, capitalism, and the negative social and economic impact that comes about from their imbalance. (centrists love balance).

Mystic Michael

An excellent op-ed, Mr. Kamischke. Corporate conservatives often speak in reverential whispers about the sanctity & inviolability of "the free market" - as if it were some inscrutable, holy thing from on high, never to be questioned or challenged.

Hogwash.

Markets were created - by people. Markets are operated - by people. And they can be managed and adjusted, according to well-known economic principles, for the benefit of people.

How did we ever arrive at this state of "We've got ours! To hell with you!" capitalism? Since when did "profit for the sake of profit" become the ONLY criterion by which private enterprise should ever be evaluated? And how were corporations ever made exempt from the social contract of balance between personal liberty & community responsibility that governs the conduct of individuals? IF corporations truly are "people", then shouldn't the principles of personal accountability apply just as much to them as to us?

It seems to me that this latest guise of unregulated, unstoppable business activity as the manifestation of some kind of exalted philosophical principle is nothing but the same old, garden variety selfishness & greed as usual - just dressed up in a pompous new robe.

Tri-cities realist

If you're looking for "well-known economic principles", try the relationship between supply and demand. And what happens when something is regulated or taxed, it artificially affects this relationship. I am NOT advocating anarchy, so you can abandon that red herring. What I do advocate is reducing the unnecessary burden that the govt places on businesses. Have you ever seen a govt regulation that you didn't like?

Mystic Michael

Of course there are government regulations that are stupid, onerous and/or misplaced. Nobody's arguing that it isn't the case. The world isn't perfect. But how is that - how was it ever - a valid argument for gutting regulation? It's only an argument for fixing or discarding the bad regulations - not for eliminating regulation, or for reducing its impact.

Markets are already distorted, by multiple forces - even before regulation is factored in. So the notion that we have some sort of pure market system that's naturally in balance is the real red herring here. Not only are markets unharmed by wise, principled public regulation, I would argue that markets cannot long remain healthy WITHOUT good regulation.

Whether or not you would "advocate" anarchy (and I know you don't advocate it), something akin to that can develop when you remove virtually all public oversight. One very good example is the condition of the Russian Federation in the immediate aftermath of the fall of the Soviet state in 1991. Moscow became a gangster's paradise. There's your unfettered, free market capitalism!

But perhaps a better analogy would be to Fascism or Feudalism, i.e. an oligarchy in which the voice of the people, as expressed through their democratically-elected government, has been suppressed, and nearly all wealth & power has been concentrated right at the top, with rights & opportunities for the masses greatly restricted as a result. That's the direction in which we're headed right now.

Madmax12

Capitalism is still the best form of Government we have, and Governments only revenue is from Capitalism. Government does not create anything, it exist only because Capitalism supports it. Our constitutional founding fathers knew this and set it up this way. It's not perfect, yet it's the most perfect system out there of all forms of Government on this planet.

Lanivan

Just bear in mind that citizens can vote government in or out, but have no control over capitalistic forces other than through the marketplace. And when the marketplace becomes global, US consumers don't have quite the clout as US voters do.

Lanivan

Something important that hasn't been brought up is the link between regulation and innovation. Capitalism is great when it is in balance with a corporate structure that encourages innovation and the entrepreneurial spirit.

Economic regulation has been in a decline since the 60's, and social regulation - environmental, health, and safety regulation - has become more dominant. A 'balanced' regulation is one that minimizes the compliance burden while maximizing the probability that compliance innovation will be successful.

Vlad - remember that BelAir video? I think it was a 1959 BelAir, if I'm not mistaken. The 60's/70's saw major regulatory regimes in auto safety - Clean Air Act 1970 (emission standards), the Energy Policy & Conservation Act of 1975, and the highly important safety standards implemented by the national Traffic & Motor Vehicle Safety Act of 1966.

Those environmental standards/regulations brought the US auto industry more in line with marketplace/customer demands. An example where balanced regulation was constructed to allow for the integration of capitalism, innovation, competition, and , of course, world dominance in the auto industry and record profits. And a safer car for consumers.

Deregulation for nothing but deregulation's sake, besides all the obvious reasons that Mystic Michael points out, could actually have a negative, stagnating, or stifling effect on competitive innovation.

Madmax12

Margret Thatcher said: Socialism is great until you run out of money

Mystic Michael

Yet again, for the benefit of you & TCR, please pay attention to the following: NOBODY IS ADVOCATING SOCIALISM. Nobody but you & TCR has even brought up this tired old, worn-out canard of the Right. Are you utterly incapable of making a point, without resorting to using simplistic, superficial slogans and such?

You may tacitly define capitalism as "Business gets to do whatever it wants, whenever it wants, however it wants, to whomever it wants, with no rules, no restraints and no consequences - forever." In which case, your so-called "socialism" would amount to anything less than that. If that's your position, then at least have the courage to come right out and explicitly state it as such.

You'd be wrong, of course. But at least it might preclude you from taking your stupid rhetorical cheap shots.

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