Aug. 19, 2002
A Matter of Trust
By J. Barlow Herget
RALEIGH - After recently examining my battered and bowed IRA, I persuaded my stockbroker to invest in a more promising direction. A week later, I received a copy of the annual report of the company in which I am a new owner. I read the document for a few minutes, stopped and wondered, "How do I know if any of this is true?"
Trust. Just as politics is the oil of government, trust is the lubricant of business. It’s hard to do business, even when you hire bulldog lawyers, if you can’t trust your customers, creditors, suppliers or fellow employees.
Many of us have lost confidence in American businesses and their corporate executives.
None other than brokerage chief Charles Schwab told President Bush just that at the recent Waco, TX, economic forum. The parade of cheaters and bad bookkeepers, starting with Enron’s Ken Lay and Arthur Andersen auditors, has grown dull and dispiriting.
We will survive this funk and we’ve already begun the repair job with Sen. Paul Sarbanes’ (D-MD), Investors Protection Act of 2002. But legislation is only as good as those who enforce it and protect it. Which leads us to the relationship between campaign financing and trustworthy government regulation.
Americans understand what former President Reagan once advised, "trust, but verify." Reagan, of course, wasn’t talking about businessmen, but the same applies. The American public’s experience with the predacious Robber Barons of the 19th Century and the reckless speculators of the 1920s persuaded citizens that they, through their government, needed to verify fair business practices.
Presidents Theodore Roosevelt and Franklin D. Roosevelt established government oversight for businesses, from trust busting to the New Deal’s Securities Exchange Commission (SEC). The SEC was called "the investor’s advocate" by one of its first chairmen, the late William O. Douglas.
These advocates and regulators rebuilt trust in America’s business sector, and they gained trust for government itself. By 1980, however, after the Vietnam War and Richard Nixon’s Watergate scandal, that trust eroded, going from 72 percent faith in government in 1958 to 25 percent in 1980. Ronald Reagan won landslide elections, proclaiming "government is the problem."
That attitude coincided with the growing influence of money in our elections. The cost of elections, at local, state and federal levels, has exploded upward. One recent estimate predicts candidates in the upcoming New York governor’s race will spend $190 million! President Bush has raised more than $20 million in one evening, as did his predecessor, President Clinton.
The people who pay these sums today are mostly the pipers of business and wealthy individuals who have the money to write $100,000 campaign checks. And they call the tunes. Their contributions earn them access to elected officials. Remember Vice President Dick Cheney’s closed door meeting last year with big energy executives? And their access often leads to favorable government action -- or inaction.
The record shows special interest contributors are very effective in persuading legislators -- Republicans and Democrats alike -- to adopt tax breaks, favorable regulations, and in many cases, fat government contracts beneficial to these big contributors. It’s natural and it’s legal.
The pattern is as old as the country, but the Enron story is Exhibit A in how rotten the system has become. Big contributions provided access to congressional leaders who reduced SEC oversight that encouraged corrupt business deals. According to the New York Times, the SEC budget grew 20 percent during the last decade. But, over the same period, its workload doubled. Morale was low; turnover high. Its new chairman, Harvey Pitt, came into the office calling for further reductions in the SEC’s authority.
To break the cycle, there must be changes in our campaign election system. Public financing, free television time, closing loopholes on soft money contributions -- these are some of the ideas on the table. We must restore trust in how government does business to restore public trust in how business does business.
Former Sen. Bill Bradley, D-NJ, once cautioned me with this tale about Russia, where trust in business is low and trust in government oversight is zero. A wealthy friend and businessman had invested $10 million in a new venture in Russia. He flew to Moscow to meet his partners and check on the company’s progress. He was escorted to a large boardroom in which his partner sat at a long table. Behind him were two armed bodyguards.
They exchanged pleasantries and then the Russian partner put a contract on the table and asked the businessman to please sign it. The contract basically required the businessman to sell his shares to the Russian for about $150,000. The businessman refused. The Russian then calmly explained that one of his bodyguards would shoot the man in his knee. He signed and left Russia, never to return, or invest.
There was no one he could trust.
Barlow Herget has owned three small businesses and served two terms on the Raleigh City Council.
743 W. Johnson St.
Suite E
Raleigh, NC 27603
919.839.1200