Managers of content-provision corporations — there’s no point any more in calling them “newspaper companies” — are desperate for revenue after enduring print ad losses. So, after 15 years of giving away the milk for free online, they’ve finally mustered up the cojones to at least talk about charging for content on their websites. They speak of this in a language the reporters they’ve fired would never use — the content provision managers talk of monetizing their sites, of incorporating paid-content strategies, of generating additional digital revenue.

And if you believe pay-content impresario Steven Brill of Journalism Online, about 1,000 publishers — er, content-provision specialists — expect to make $900 million at $8.33 a month from the 10 percent of online website visitors Mr. Brill thinks would be willing to cough of up the cash. But an American Press Institute study says only 51 percent of publishers (who voluntarily completed a survey) think they can charge successfully for online content.

But what does “successfully” mean? And who gets to define it? Easy: Cui bono?

Those at the top of many content-provision corporations believe they would benefit. Mr. Brill says he has 1,000 publications signed to non-binding agreements. Others aren’t so optimistic. Consultants for the American Press Institute, in an early study with admitted weaknesses, suggest only readers would only pay $4.64 — nearly halving Mr. Brill’s nearly $1 billion estimate.

Content-provision corporations are eager, nay, slaked with thirst for advertising revenue to replace the dollars that have fled print newspapers. Although a few large content-provision corporations have managed to hold share prices lately despite tumbling profits, managers need that pay-wall revenue to reinvigorate investors who lost a bundle on newspaper stocks over that past five years. (And let’s not forget some argue consortium-set, pay-wall prices are tantamount to collusion in pricing.)

Because sound data to predict pay-wall success, erecting that wall risks revenue flight as much as revenue restored. Respected analyst Alan Mutter (”Reflections of Newsosaur“) has written extensively in the past few months about pay walls. Mr. Mutter says:

But what, publishers rightfully wonder, will become of the other 90% of website visitors – and the $3.1 billion in advertising revenues the U.S. newspaper industry generated on the web in 2008?. … Here’s why publishers are sweating: While Brill argues that newspapers can preserve some 90% of their page views and online advertising after erecting a pay wall, publishers consistently have told me that they fear they could lose 75% or more of their traffic and banner revenue if they started to charge for content.

Readers — at least those who pay the toll to cross the pay-wall moat — get to define success. (Here’s a look at what some smaller, rural newspapers in non-competitive situations have done in terms of content behind the pay wall.) Remember that “Members Only” clothing line of the ’80s? That’s what a pay wall promises: Uniqueness. Frankly, that’s always been a good local newspaper’s strength — unique content. Local news about local people and local issues.

Erect a pay wall. Promise quality, unique, premium content. That’s the formula the content-provision corporations promise. Will they deliver in terms of what the readers accept as a fair exchange for fee paid? It’d be easy to snark here. For example, in May more than half of the 45 million visits to the online Palm Beach Post linked to the police mug shots the Post runs online. (It’s not the only online paper that does this, too. And a host of ethical issues are involved.)

Is this the quality, unique, premium content that lies behind the pay wall? No, not really. Most of that unique content will be locally generated news, features and “service” information — school lunches, entertainment listings. But will that local behind-the-wall content have quality in quantity?

If the pay walls had been erected 15 years ago — even five years ago — then the answer would be more yes than no.

In this still-dawning century, thousands of the skilled, experienced professional practitioners who produced the quality, unique, premium content no longer work for the content-provision corporations. That’s because the corporations fired the producers. To maintain profit levels to satisfy the investors to whom content-provision management sold its collective soul, it cut expenses — firing the professionals it desparately needs now to make good on the pay-wall promise.

A successful business model? Or crap shoot?

Even if content-provision companies have that $900 million fall into their laps as Mr. Brill suggests, which is more likely to happen? Stock buybacks and dividend increases? Or investment of at least tens of millions of dollars into hiring professional newsmen and newswomen to make good on the promise of quality, unique, premium content?

Yeah, right. It won’t be the latter.

Recommended reading:

Alan Mutter’s excellent series on arguments for and against pay walls:

Why aren’t we paying for news?
What stops publishers from charging for news?
How publishers can make Web content pay

Paul Farhi of the American Journalism Review, arguing for reinvigoration of the print newspaper:

Build that pay wall high

According to the International Monetary Fund (IMF), the 182 nations of the world had a combined GDP of nearly $60.9 trillion (or $60,900 billion) in 2008. But comparing the GDP data to the Fortune 500 data produces the table at right (click for the top 182 nations and corporations each, in order). If Exxon Mobil were a country, it would rank 25^th in the world, right between Norway and Austria. Wal-Mart would rank 27^th, sandwiched between Austria and Taiwan. Chevron would rank 28^th, ConocoPhillips 42^nd, GE 49^th, GM 59^th, Ford 60^th, and AT&T, H-P, and Valero would be ranked 64-66 respectively.

In fact, all of the Fortune 500 would rank above the 40 smallest national economies in the world. And the smallest company on Fortune’s list of the 1000 largest U.S. companies would be larger than the national economies of 28 entire countries. Exxon Mobil’s revenue is greater than the combined GDP of the 78 smallest countries (out of a total of 182) in the world.

And yet the Supreme Court took the unusual step of ordering a hearing during the court’s recess in order to hear legal arguments over whether corporate money could be spent to influence elections and whether the current bans on most such money in politics were constitutional. And indications are that the conservative majority will likely rule to overturn nearly 20 years of precedent and rule that it is constitutional for corporate money to be spent directly to influence local, state, and federal elections.

According to the Constitutional Accountability Center, the four liberal justices were the ones quoting from the U.S. Constitution to support their questions and arguments:

Justice Ginsburg reminded Olson that it is living persons, not corporations, who are “endowed by [their] Creator with unalienable rights.” Justice Sotomayor, too, picked up on this theme, emphasizing how the Supreme Court had rewritten the Constitution to create the fiction that corporations are persons entitled to the same basic rights as human beings. If we are looking to constitutional first principles to topple precedents, she asked, why shouldn’t we also look at the cases that invented corporate constitutional personhood and “imbued a creature of State law with human characteristics”?

Several of the court’s conservatives are supposed to be Originalists, judges who believe that the meaning of the Constitution was fixed at it’s writing (except for amendments, of course) and has not changed since then. Granting state creations the rights guaranteed to flesh and blood people when the Constitution doesn’t mention state creations is hypocrisy of the first order. It’s also an example of the very judicial activism than the Senate Republicans who voted against confirming Justice Sotomayor feared she would bring to the court. Perhaps the most activist judge on the Supreme Court today, defined by being the most willing to overrule Congress, is Antonin Scalia.

At present, corporate profits may not be spent to directly influence elections. This has historically been the case because corporations can live effectively forever and amass financial resources that no individual person could equal, and because legislators and courts have been concerned about corporate influence corrupting the political process. In essence, these are many of the same arguments that federal law uses to ban foreign nationals and governments from donating money to political campaigns. And yet, to the best of my knowledge, there are no foreign governments suing for free speech rights to influence elections.

The problem twofold – corporations are presently considered people, and money is considered speech. Corporations were defined legally as people for the purposes of limiting personal liability in the event of a business failure. But one of the results is that corporations have claimed the rights guaranteed to real people in the Bill of Rights, specifically the First Amendment right to free speech. And because the Supreme Court declared, in Buckley v. Valeo, that spending money equals exercising the right to free speech, corporations are now claiming that their money should be given identical rights to the money of individual citizens.

There are at least two direct solutions to this problem. The first would be to overturn Buckley v. Valeo. This would make money no longer equal to speech and could be an even more significant change in legal precedent than overturning 100 years of campaign limits on corporate donations to candidates. It would also require the conservatives on the court to go against their known personal ideologies.

The second is to redefine corporations so that they are not considered individual people for all situations. This would certainly require federal legislation and would probably require state legislation as well. It would also require that the economic and political powers at the state and federal levels voluntarily relinquish the power that corporate money (via PACs today, possibly via direct contributions in a few months) brings them.

Neither is particularly likely given the composition of the Supreme Court and the major influence of money in politics today.

Eventually, though, if the laws are overturned, enough companies will corrupt enough politicians with direct donations that they’ll overreach, and the public reaction will be swift and unstoppable. And when that happens, Exxon Mobil’s money and Wal-Mart’s money and Chevron’s money will be as untouchable as money from Hugo Chavez of Venezuela or Mahmoud Ahmadinejad of Iran.

Both of which have smaller economies than either Exxon Mobil or Wal-Mart.

Further, during that decade, the newspaper industry has purposely deteriorated its product in a vain attempt to chase the last dram of declining advertising revenue. To do this, it has cut costs in the two principal areas it can — paper and people. Physically, newspapers have shrunk in height, width and number of pages, reducing the amount of newsprint required. In 1990 America’s daily newspapers had 56,900 staffers; 5,900 journalists lost their jobs in 2008; and thousands more have been whacked this year. And it’s the expensive high end of the experience spectrum that the industry has callously discarded. So profit levels remained tolerable to shareholders, but only because of decreased costs — not increased revenue.

And the titans of the industry now say they’re going to charge for a product produced by fewer people with less experience that’s led to far more editing errors and one-source stories that reveal much in their shallowness about the quality of the product being sold? Good luck with leading the paid content charge, Rupert.

Now, the claim that the news product has been disfigured by fiscal folly is admittedly a swipe with a broad brush. But there was a time when readers of many, if not most, newspapers in the United States could point to more than one story in their local paper that exhibited the characteristics of first-rate reporting and writing. These would be stories that provided context, background and meaning beyond the mere reporting of “what happened.” These would be stories fleshed out with color, tone and detail. These would be stories grounded in substance wrought by vigorous reporting, rather than inexpertly daubed with cloying style. These would be stories that a reader would remember — stories by an experienced, competent journalist whose byline a reader would remember and look for in the future.

That’s not true any more. And readers know it. They know when they’re being poorly served. They know when the product loses value yet the newsstand and subscription prices rise. And the prime demographic the industry wishes to reach (because they’ve got discretionary income to spend) has come to know another truth promulgated foolishly by the industry: News is free. Newspapers may place their product behind a pay wall — but that’s no guarantee that readers who have come of advertiser-sought age during the Era of All Media Are Free will actually buy the product.

I don’t know how this seller-vs.-buyer drama is going to play out, but the first act will come soon. I expect larger metro papers, now free online, to institute partial pay walls within a year. Perhaps a consortium of papers, as envisioned by Steven Brill’s Journalism Online, will institute some sort of online subscription or pay-per-story scheme (which might qualify as price-fixing?). I’d bet newspapers have already done readership surveys asking would you pay and how much would you pay. (Wouldn’t you love to see those survey results?) Heck, is this even a well-thought-out business model? Or is it a new biz model, same as the old biz model?

The industry will spend huge sums on Web platforms and promotion. It will spend oodles of dough on technologically particularizing its pay walls. It will spend rafts of money on promoting the advantages of its new superb online news subscription systems.

But how much will it spend on improving its product?

The last decade suggests an answer: Nada.

Good luck with this Brave New Pay Wall World, Rupert.

That’s the conclusion of three University of Kansas professors who undertook an empirical analysis of the American Jobs Creation Act of 2004 to study rates of return for money spent on lobbying, reported The Washington Post in an April 12 story by Dan Eggen.

This law — this shady excuse for a law with a name only charlatans could love — allowed companies that had earned profits overseas to inexpensively bring that money back into the States. The customary tax rate on such profits was 35 percent. But this elegantly named process — repatriation of profits — gave companies a one-time chance four years ago to haul the money home, paying only 5.25 percent.

The act was a tax holiday sought by a coalition of companies, primarily big pharmaceutical and high-technology corporations, all because they sought to pay little or no taxes on profits generated overseas — and they concocted a successful scheme to pull it off.

Mr. Eggen summarized the Kansas professors’ study:

The largest recipients of tax breaks were concentrated in the pharmaceutical and technology fields, including Pfizer, Merck, Hewlett Packard, Johnson & Johnson and IBM. Pfizer alone repatriated $37 billion, representing 70 percent of its revenue in 2004, the study found. The now-beleaguered financial industry also benefited from the provision, including Citigroup, J.P. Morgan Chase, Morgan Stanley and Merrill Lynch, all of which have since received tens of billions of dollars in federal bailout money. [emphasis added]

Critics argued that the act would benefit multinational corporations to the detriment of domestic firms, reported Jonathan Weisman of the Post in August 2005. Even the Bush White House was dubious over the alleged economic benefits of the bill:

“There will be some stimulative effect because it pumps money into the economy,” said Phillip L. Swagel, a former chief of staff on President Bush’s Council of Economic Advisers, which had opposed the tax holiday. “But you might as well have taken a helicopter over 90210 [Beverly Hills] and pushed the money out the door. That would have stimulated the economy as well.”

In 2006, Washington Post business columnist Allan Sloan wrote of Ford Motor Co.’s abuse of the misnamed act:

It’s almost enough to make you laugh — bitterly, of course. Here was Ford Motor Co. announcing yesterday that it had cut 10,000 jobs last year and that it will cut up to 30,000 more. But shedding jobs at muscle-car acceleration rates didn’t stop Ford from pocketing hundreds of millions of dollars courtesy of the American Jobs Creation Act. … Hello? How can you simultaneously cut jobs and benefit from the American Jobs Creation Act? Welcome to the wonderful world of Washington nomenclature. [emphasis added]

Mr. Sloan estimated that Ford saved $850 million in taxes, not the $250 million the company suggested in its press release.

So how did corporations that don’t believe in paying their appropriate share of taxes finagle this?

Here’s one story, as reported by Mr. Eggen:

The provision was championed in part by the Homeland Investment Coalition, a group of companies and trade associations that was formed to push for the repatriation holiday. The Pharmaceutical Research and Manufacturers of America (PhRMA), one of the disbanded coalition’s members, said in a statement Friday that “repatriation of profits provided a new source of investment for American companies.”

“PhRMA supported the legislation four years ago as part of a broad business coalition because of the additional economic benefits the bill would provide,” senior vice president Ken Johnson said. “It meant jobs and skilled training for American workers, as well as a shot in the arm for local economies.” [emphasis added]

This coalition of multinationals had worked on getting its profits home earlier— and falsely articulated its intent regarding jobs. In 2003, seeking support for the then-named Invest in the U.S.A. Act of 2003, the coalition sent a letter to Sen. Chuck Grassley, chair of the Senate Finance Committee, and Sen. Max Baucus, ranking member. The letter said that “The $135 billion currently offshore that would be invested in America would benefit the U.S. economy by increasing domestic investment in plant, equipment, R&D and job creation” among other benefits, including investments in emerging technologies, funding for pension plans hurt by stock market declines, and, especially:

“[i]mproving the long term financial strength of U.S.-based companies by reducing domestic debt loads, strengthening corporate balance sheets, and lowering corporate bond rates; increasing dividends to shareholders (which can be productively redeployed); and raising equity market valuations by increasing funds available for share repurchases.”

Parse it any way you wish — creating jobs was the intended political cover for any member of Congress to sign on as a co-sponsor of the legislation.

But did the American Jobs Creation Act of 2004 actually lead to a net gain in jobs? Nope. Did it provide “a new source of investment for American companies”? Not even close. And supporters of this tax holiday tried to get another such tax break. Reported Mr. Eggen:

… the Congressional Research Service and others have since found that many companies cut jobs in the wake of the tax break and that nearly all the money was used for stock buybacks or dividends. Supporters failed in a bid to include a similar tax break in this year’s stimulus legislation, and a Senate subcommittee has launched an investigation into how companies used their tax savings under the 2004 program. [emphasis added]

Any congressional investigation lags reporting by The New York Times by four years. An August 2005 Times editorial said:

A month ago, Hewlett-Packard announced it would lay off 14,500 workers by November 2006. Meanwhile, the company is about to repatriate $14.5 billion in profits it has in overseas accounts at a measly tax of 5.25 percent — an 85 percent discount off the normal corporate rate. The cut-rate repatriation, offered by Congress to American companies that bring profits held in foreign lands home in 2005, was sold to the public as a one-shot deal to generate cash for new hiring. But as its critics warned, the tax cut is functioning instead as a handout for America’s most profitable companies.

Hewlett is just one example. Normally, the tax on a $14.5 billion repatriation would be about $5 billion. Because of the bargain rate in 2005, Hewlett expects to pay roughly $800 million. Hewlett also expects its layoffs to cost the company about $1 billion. Thus, in Hewlett’s case, the tax holiday has not only failed to create jobs, but has also more than covered the cost of cutting workers from the payroll.

Dozens of other companies are also bringing billions home with no mention of new hiring. [emphasis added]

Drug companies especially needed to bring the overseas profits home — but not, as the act’s name suggests, to create jobs. They had big financial problems looming. Patents on brand-name drugs worth billions in sales were about to expire, leading to competition by companies producing generic versions.

Upcoming patent expirations for [Pfizer] include Lipitor in 2011, ‘the little blue pill’ Viagra in 2012, and the allergy medicine Zyrtec in 2012 as well. The loss of these patents would see Pfizer losing more than $14 billion in revenue. [emphasis added]

During the last six months of 2004, as the bill was manuevered successfully through Congress, the stock prices of drug companies were falling, in part because of scandals over the safety of drugs that had long been approved by the FDA. For example, government regulators said Merck & Co.’s arthritis drug Vioxx may have led to more than 27,000 heart attacks and sudden cardiac deaths before it was pulled from the market in October 2004.That happened just two weeks before the American Jobs Creation Act was signed into law by President Bush. Merck badly needed its overseas profits, if only to deal with what might be a litigation bill of $10 billion to $15 billion.

Merck, like other companies, also had developed what Motley Fool columnist Robert Steyer in February called

a version of Pfizer’s “Lipitor disease” — a best-selling drug with limited remaining patent life accounting for a huge percentage of revenue:
• Merck lost protection on Fosamax early last year.
• Merck is seeing protection disappear by 2012 on the two drugs that made up 40 percent of revenue through the first nine months of 2008 — Cozaar/Hyzaar and Singulair.
• Bristol-Myers’ Plavix, creating 27 percent of 2008 revenue, gets chopped in 2011.
• Lilly’s Zyprexa, bringing in 23 percent of last year’s revenue, is also done for in 2011.

Big Pharma knew long before 2004 it needed to get every last dollar of overseas profits back into the States — at the lowest tax rate possible. It had to shore up declining revenues and dividends to stockholders — and to fuel big mergers, which it saw as the best cure for Lipitor disease.

But job creation? Merely a fig leaf for public consumption to make this tax holiday palatable to politicians. Jobs were lost, not created.

By August 2007, as the AP graphic shows, pharmaceutical companies had announced thousands of jobs cuts just two years after the repatriation of overseas profits.

Four years ago, Mr. Weisman of the Post reported others were lining up at the tax-break trough:

Procter & Gamble Co. intends to bring home $10.7 billion, and Johnson & Johnson Inc. has an $11 billion plan. Schering-Plough Corp. could bring back $9 billion. This week, Hewlett-Packard Co. announced it will repatriate $14.5 billion in the second half of the year, mainly for “strategic acquisitions,” said Ryan Donovan, an HP spokesman.

Strategic acquisitions made possible by a jobs creation act? More than 800 companies took advantage of the tax break.

Here’s another way to examine passage of the 2004 act. Cui bono politically?

Apparently, the congressional sponsor and 40 co-sponsors did. Let’s look at how just one member of the coalition — the pharmaceutical industry — sought to influence members of Congress through donations to their campaigns.

The Ways and Means Committee, by constitutional fiat, is the chief tax-writing committee of the House of Representatives. The 2004 bill was primarily a creation of the House.

Former congressman Bill Thomas (R-Calif) served as chairman of the House Ways and Means Committee during the run-up to the bill’s passage. He’s listed as the prime House sponsor of the American Jobs Creation Act. During his congressional career, the pharmaceutical industry gave his campaign more than $407,000.

The bill had 40 sponsors. All but one were Republicans. A review of the campaign contributions records of these 40 men and women aggregated by the Center for Responsive Politics showed that since 1998, the pharmaceutical industry has given their campaign committees $4.49 million. Of those 40 co-sponsors, 14 served on the Ways and Means Committee: They have received, since 1998, $2.5 million from Big Pharma.

Recall that, thanks to the act’s tax break, Pfizer repatriated $37 billion.

Former Rep. Nancy L. Johnson, Democrat of Connecticut (where drug-maker Pfizer has a significant research and development presence), received more than $692,000 from Big Pharma between 1998 and her departure from office. She is now a senior public policy adviser (er, lobbyist) for Baker, Donelson, Bearman, Caldwell & Berkowitz and serves on the Pfizer U.S. Health Advisory Board.

The bill had no serious opposition in Congress. The Senate voted 69-17 on the bill; The House, 207-16. Their acquiesance allowed an average rate of return of 22,000 percent for the corporations who lobbied for this bill, say the Kansas professors.

If $1 invested in lobbying earns a $220 return, as the Kansas study suggests, then the pharmaceutical industry has invested, for the 41 sponsors and co-sponsors of the American Jobs Creation Act of 2004, about $4.5 million. That’s a return of $990 million. That’s pretty good ROI for buying only 7 percent of the members of Congress.

But this week, it gave its product to me for free. I would have gladly paid up to 5 cents to read just one of its stories. But the JS didn’t charge me. What kind of business model allows me to consume a product for free?

I learned of the story through an e-mailed version of Romenesko, the legendary (or infamous, depending on your POV), media news page at Poynter. org, the Web site of the Poynter Institute, a journalism think tank.

The Poynter e-mail contained this tease: “Wisconsin university football coach bans student reporters (http://www.jsonline.com/business/43539347.html).” I clicked on the link and —ta da — there it was, a story written by JS reporter Don Walker. Free. Didn’t have to pay a penny. And I would have. Gladly.

I know this isn’t a rare phenomenon. I suspect you’ve read news for free online, too. Bet you kinda expect it to be free, even demand that it be free. Perhaps you think it’s some kind of birthright. But in the long run, if you do not pay for the product of professional journalists, you will lose one of your best defenses against secrecy, corruption, and tyranny.

Those who wish to keep information from you, those who demand or offer kickbacks and bribes to get what they want, those who wish to secretly manipulate the levers of power unfairly for selfish financial advantage, those who wish to attain and maintain power over you … they’re winning. They’re winning because fewer and fewer journalists are keeping an eye on them, holding them accountable for their words and actions. Remember, that’s the deal the Founders gave the press: Hold government accountable, and we’ll protect you from government intervention.

If you don’t pay for the product produced by professional journalists who cover the “eat-your-spinach” stories bloggers don’t, won’t, or can’t, then don’t complain if the powerful and influential take advantage of the lack of scrutiny formerly provided by the 5,900 journalists who lost their jobs last year.

In 1990 America’s daily newspapers had 56,900 staffers, very close to the historical high, according to the American Society of Newspaper Editors. Newspapers were cash cows for investors, with profits north of 20 percent. In 2000, the population of journalists at dailies was still high — 56,400. Then the Internet came, folks say, and stole all the advertising revenue. Profit margins have been halved — as revenue has dropped precipitously. (Of course, it’s not as simple as that. Apparently, bad management and arrogance had much to do with the decline of circulation, and hence the declining advertising revenue, of daily newspapers. In effect, corporate newspaper management shot itself in the foot as it bad-mouthed the Internet as an irrelevant upstart.)

To attempt to maintain the profitability of that now-highly suspect business model, newspaper managements whacked jobs — the very jobs that produce the product those executives presumably want to sell. This has to be among the dumbest responses to economic stress in corporate history.

At the end of 2008, only 46,700 journalists were left at the America’s daily newspapers. 2009 is off to a rough beginning: The Web site Paper Cuts reports that about 8,500 newspaper staffers (including journalists) have been laid off or bought out as of mid-April. (Paper Cuts is a Web site by Erica Smith, who has been tracking newspaper layoffs since 2007.) It is possible that by 2010, the number of daily print journalists will have been halved in only a decade.

Surely that’s not a positive development for the democratic health of the Republic.

Interestingly, the nation’s premier journalism graduate programs are seeing marked increases in applications: Columbia, up 38 percent; Stanford, 20 percent; and NYU, 6 percent. But these new students are not necessarily seeking to become journalists. Says Jim O’Brien, director of Northwestern University’s Medill Career Services office:

Corporate communications is a growth area in terms of opportunities for jobs for our MSJ grads. Both corporations and nonprofits who are interested in communications, where they had typically looked at an English major before, are now thinking that a journalism grad might have leg up on those candidates because of their training.

This is a two-pronged blow to “eat-your-spinach” news. First, newspapers are shedding the very people trained —and paid — to do that. Second, former journalists and others are seeking graduate journalism degrees to become corporate communicators.

That means fewer professionally trained and experienced journalists are digging for information corporations and governments wish to hide, and more smart people are being trained — and, eventually, paid handsomely — to do the hiding.

They’re winning. Democracy is losing. Please consider that next time you read a news story online — for free. It may be, in the long run, a very costly read.

On a recent edition of his Journal, transcribed at AlterNet, Bill Moyers interviewed Bill Black, a regulator during the savings and loan crisis of the late 1980s, who said:

“. . . an economist who [was] a regulator in the Savings and Loan industry. . . Larry White, wrote a book about the Savings and Loan crisis. And he said. . . one of the most interesting questions is why so few people engaged in fraud. Because objectively, you could have gotten away with it. But only about ten percent of the CEOs engaged in fraud. So, 90 percent of them were restrained by ethics and integrity. So, far more than law or by F.B.I. agents, it’s our integrity that often prevents the greatest abuses.

William Engdahl seconds this at Global Research:

Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The five are. . . JPMorgan Chase which holds a staggering $88 trillion in derivatives. … followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four. . . is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion.

After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. … In effect, these five institutions today believe they. . . can dictate the policy of the Federal Government. … The financial cancer must be isolated and contained by Federal agency in order for the host, the real economy, to return to healthy function.

Also, at Business Week, Matthew Goldstein wrote:

It’s plain crazy that 96% of the total notional value of all derivatives contracts is concentrated in the hands of five US banks.

Personally I question the structural integrity of the whole system. But I’m as capable as the next guy of drawing consolation from the knowledge that the problem might be more isolated than previously thought. Time to borrow another phrase from the thirties: “Break up the banks.”

Goldstein again:

If this seemingly endless financial crisis has taught us anything, it’s that no financial institution can ever again become too big to fail. That means any mega bank remaining standing at the end of this crisis will have to be split up either by voluntary divestitures, or by old-fashioned trust busting.

“Banksters,” “break up the banks,” “trust busting” — reprising those old refrains is music to the ears of those of us who are instinctively anti-big business.

He was discussing AIG, and apologised later for the heat of his language. Many people probably feel that he was too polite.

It must be very cathartic to lay all of the blame for the financial crisis at the doors of bankers and investment brokers. No-one has yet asked how it is that a single industry has managed to attract nothing but liars, lunatics, imbeciles and pathological hucksters while the rest of the world is filled with wide-eyed softies who have been taken for a ride.

Point is that the banking community is still comprised of people not unlike any other part of society; in parts filled with kind souls, mournful mutterers, soccer-moms, hipster wannabes, waiting for retirement and whatever other social class you can lay your hands on.

The disaster in the banking sector is deeper than the vapid demonization of a few men, and contemplation of that disaster should give thoughtful people the tremors.

Banking is no less a complex industry than are hospitals, schools, factories, and farms. Where-ever large groups of people are managed in order to produce a product, or serve a customer, only a small number of people are at the coal-face.

Call it the Iceberg Enterprise. You only get to see a small amount of what is really going on.

In order to align all the people at various levels of the organisation with the bits that are visible, we use management theory. So we divide companies up into profit centres and set staff measurable targets, giving them incentives to hit those targets. Then people play by those rules.

From the original “scientific management” of Frederick Taylor, who divided up every part of work processes into tiny, repeatable steps, and measured them (back in the 1880s); through to Six Sigma and Total Quality Management today. Rules guide how people interact in complex business environments.

Setting the Rules

Let me give you a feel for how improbable the results of such rules can be. I studied a number of major European public hospitals for a research project. Each hospital is broken down into a number of cost and function centres. Each department has a budget, and input costs, but they don’t recover their costs directly. This is pretty-much how many companies are structured.

So, the pathology lab has a budget and must minimise their input costs on specimen test kits and pathology devices; each of trauma, out-patient care and the various departments making up elective care have their own budgets; and a trust manages the accounts.

My study was to calculate what causes patient waiting lists to rise. There are many causes, but I’ll give you one. The path lab did their job of saving costs by reducing the cost of a ubiquitous set of blood collection devices. They saved 20% of the unit cost, which equalled significantly less than 1% of their overall costs. The new devices met all the relevant CE-mark certification requirements, but the company that supplied them didn’t offer any training or support as part of the process. Specimen rejections went up, but the devices were so cheap, no-one minded.

However, a rejection isn’t just a new plastic container. It is a whole new test. It is a patient who spends an extra few hours in the hospital, taking up space and time that other patients could have used.

You only need a few extra rejections and waiting times become extremely large.

But everyone is obeying the rules. Costs were saved in one department, earning the purchasing officer his bonus, and costs went up everywhere else.

There have been other rule-based horror-stories: of the policeman who arrested a 10-year-old boy for spraying a friend with a water pistol (because he needed to hit an arrest target); of traffic police blanketing car-parks with fines (to hit their targets); of surgeons refusing to perform risky surgery (lest they endanger their survival target rates).

On a recent project, we were told that a new technology wouldn’t be allowed in a German hospital because the efficiency gains were not permissible by law.

All these rules seem sensible at the time they are written, but the net impact are small inefficiencies that degrade the whole.

Sharpening the Iceberg

One of the most frenetic target-setting parts of any large business is in sales. Reps are given specific targets which they must reach or risk getting fired without pay. Since most of their pay is commission-based anyway, they’re already focused on selling, no matter what.

Every quarter the targets are re-appraised and you can bet they don’t go down.

This is how banking got itself into trouble; massive targets for deal-closure. Staff hit them, at the price of making credit easier and easier to get.

So we demonise bankers.

But most businesses and organisations are structured this way. Charities have professional fundraisers who collect cash in a similar way; no-one ever asks if the charity concerned can actually absorb the cash so-raised. Many cannot, and rot soon follows.

The US health service is one of the most expensive and inefficient in the world. Medicaid is all but bankrupt, and will be finished off once the baby-boomers retire. France pays the highest agricultural subsidies in the world based on income from the EU, paid by Germany.

Everyone is hitting their targets.

Banking just happened to fail first. Unsurprising, really, since banking is at the cutting edge of all these bright new management ideas.

However, in singling out bankers, in treating the problem as if it is only to do with capital and finance, the underlying problem is being ignored.

The fundamental way in which complex organisations are organised and the way in which goals are set needs to be reviewed.

Otherwise, in a few years, maybe we’ll be witch-hunting some other unfortunate industry who today are considered “Masters of the Universe”.

“Wanna make some serious money real fast — and legal? Yeah, really — legally.

“All you gotta do is give me about $114 million. That’s all — and I’ll give you an ROI of 258,449 percent. Yep. You heard right — 258,449 percent. You’ll make $295.2 billion.

“That work for you?”

Apparently, yes. The Troubled Asset Relief Program, the now-fabled, poorly supervised “TARP,” has been quite a lucrative return on investment for companies getting the taxpayer-funded bailout bucks.

According to the Center for Responsive Politics:

The struggling companies whose freewheeling business practices have contributed to the country’s economic woes are getting a lucrative return on at least one of their investments. Beneficiaries of the $700 billion bailout package in the finance and automotive industries have spent a total of $114.2 million on lobbying in the past year and contributions toward the 2008 election. … The companies’ political activities have, in part, yielded them $295.2 billion from the federal government’s Troubled Asset Relief Program (TARP), an extraordinary return of 258,449 percent.

Says the center’s director, Sheila Krumholz:

Even in the best economic times, you won’t find an investment with a greater payoff than what these companies have been getting. Some of the companies and industries that have received payments may now consider their contributions and lobbying to be the smartest investments they’ve made in years.”

Now, who received the most in campaign contributions from these companies? Why, the politicians who are charged with oversight of TARP expenditures.

According to the center:

They include Sen. Chris Dodd of Connecticut, chairman of the Senate Committee on Banking, Housing and Urban Affairs (he received $854,200 from the companies in the 2008 election cycle, including money to his presidential campaign) and Sen. Max Baucus of Montana, chair of the Senate Finance Committee (he received $279,000). In total, members of the Senate Committee on Banking, Housing and Urban Affairs, Senate Finance Committee and House Financial Services Committee received $5.2 million from TARP recipients in the 2007-2008 election cycle.

President Obama’s campaign received at least $4.3 million in donations from employees at these companies.

The center provides a chart listing TARP recipients as of Feb. 2, campaign contributions for the 2007-2008 cycle, lobbying expenditures for 2008, the amount of TARP money received, and what the center terns “return on investment.” Some ROIs reach into millions of percent.

It’s interesting but infuriating reading, of course, and the analysis is somewhat flawed and unfair. Not all of the lobbying expenditures were directly targeted at obtaining TARP money. Many of the campaign contributions may actually have been given because of a corporate donor’s belief in a particular candidate (please, stop laughing.)

But that amount of money placed into politics by corporations that control global financial markets amounts to an enormous megaphone. Politicians can’t help but hear, let alone be deafened, by voices that loud.

The center’s analysis is instructive. It reminds us yet again of the corrosive role of Big Money in political decision making.

With assets of $493.2 million and liabilities of $661.1 million, the Strib, as it’s commonly known, certainly qualifies as undercapitalized. (Yes, we know: Declines in print advertising revenues had a great deal to do with this.) Wisely run? Less than two years ago, then-owner McClatchy Co. sold the Strib to a private equity group, Avista Capital Partners of New York, for $530 million.

So what does a gaggle of “seasoned professionals” — whose Web site says its “Global Partnership Strategy of focus, collaboration and expertise in business and investing—will enable us to do more than just make ‘good buys’ in today’s market … and supports management and enhances operational performance, creating real value” — know about newspapering?

Apparently not much, according to Robert G. Picard, a media economist of note:

The bankruptcy filings of the Minneapolis Star-Tribune and Tribune Co. are cast by many as a sign of the continuing decline of the newspaper market. However, it is noteworthy that neither firm is owned by a company with a newspaper heritage, but by firms in the newspaper business primarily for financial gain. The Tribune’s owner is from the real estate business and the Star Trib’s is from private equity. [emphasis added]

Gazillionaire Sam Zell bought the Tribune Co. in 2007 for $8 billion but only put up $300 million of his own money, saddling an employee partnership with debt for the rest. Now, Tribune has nearly $13 billion in debt. Its journalistic flagships, the Tribune and the LA Times, have had substantial personnel losses and enjoy far less journalistic clout under Zell’s “leadership.”

Mr. Picard notes the special relationships newspaper executives have had with the communities in which they operate:

Newspaper companies have long played special roles in communities, exercising social and political influence, and promoting corporate responsibility, accountability, and community standards. Publishers and editors have typically sat with the other civic leaders on boards and committees of chambers of commerce, community development organizations, foundations, and local offices of the United Way and the Better Business Bureau.

The roles and influence of newspaper executives were founded on their standing in the community and of perceptions of their respectability, community interest, and fiscal dependability. Newspaper publishers and editors would loathe any hint of financial instability or impropriety that would mar those views. The reputation of the newspaper and its brand were inextricably linked.

That relationship, frankly, has been soiled for decades as newspaper management became far more concerned with satisfying investors than serving the public interest. That began long ago when investment bankers asked Al Neuharth, then Gannett Co. CEO and founder of USA Today, how to spell “Gannett.” Mr. Neuharth aprocryphally replied: “M-O-N-E-Y.”

Wall Street discovered newspapers had higher profit margins than any other industry. Newspapers were generating margins exceeding 25 percent. So Wall Street bought newspapers to make money — not necessarily to produce great journalism in the public interest. Over time, demands for higher profit margins increased, because large institutional investors wanted the highest short-term returns.

Imagine what newspapers might be like today if, in the ’60s, ’70s, and ’80s, newspapers, either family-owned or chain, had addressed their absolutely lousy pay scales and modernized their physical plants far more than they did. Imagine what they’d be like if experienced newspaper people (and that includes advertising and circulation folks) had continued to run newspapers. Imagine what they’d be like if in the early ’90s bright, newspaper-knowledgeable executives had not laughed at the infant World Wide Web and recognized it as an opportunity rather than a threat.

Mr. Picard points out the consequences:

Newspaper companies have survived depressions, recessions, war, and all kinds of economic uncertainty in the past. They did so because they were financially solid companies with equity structures and balance sheets that allowed them survive very uncomfortable financial circumstances. Companies like the Tribune Co. and Star-Tribune are based on weaker foundations and come from cultures in which bankruptcy to reduce debts or abrogate contracts — hurting local businesses and their own employees — is just another business tool. [emphasis added]

Modern equity-focused executives, as newspapers continue to feel investor pressures from declining returns, refuse to admit the flaws of their short-sighted management. They continue to insist that the newspaper will be as good as ever. Here’s Chris Harte, publisher of the Strib, on its bankruptcy filing:

We intend to use the Chapter 11 process to make this great Twin Cities institution stronger, leaner and more efficient so that it is well positioned to benefit when economic conditions begin to improve. [emphasis added]

Huh? “More efficient”? (Code for “return to higher profits for investors.”) “Well positioned to benefit”? For whom? (Code for “return to higher profits for investors.”)

Just once, why couldn’t a newspaper executive say this:

Our bankruptcy filing is partly the result, of course, of dwindling print advertising revenues. But, I admit, we’ve made some bad decisions as managers. To maintain investor dividends, our short-term focus blinded us to the necessity to improve the product. But to maintain those investor returns, we laid off and bought out the people who would best be able to improve the product. That was kind of dumb.

Not likely to happen, of course. But Mr. Picard, in an analysis he wrote last August, notes that the newspaper industry actually is in good shape:

If one rationally looks at the industry, however, one sees that it is fundamentally sound, but that a unique, financially golden period in its history is ending. It is that change which is creating the bulk of the turmoil in the industry, but the biggest problem is that those working in the industry have short memories about the newspaper business and don’t remember it any other way.

The generation leading newspapers and newspaper companies today has only experienced a period in which extraordinary growth of advertising increased newspaper revenue across the nation. That growth, combined with the development of local monopolies, created a period that enriched papers highly. This, of course, created great interest in investors and produced capital that allowed public companies to grow and acquire papers, driving up newspaper prices and the value of newspaper assets.

Today, the conditions that drove the growth of the past 3 decades are ending, wealth is being stripped from the industry, investors are losing interest, and publishers are struggling with negative and low growth.

The Times (literally) are a-changin’. Stay tuned.

I learned to parse cop code by making daily phone calls to the cops to get the police log — and often walked to the cop shop and read it myself when the damned desk sergeant wouldn’t read it to me. I learned by paying attention to details. I listened to what sources said — always more than one, y’know — and wrote it down. I had a newsroom godfather who taught me well: “Get it right. Period.” I only used anonymous sources three times in 20 years.

One day Editor Bob said he’d heard somebody was going to build a nuclear plant up river. “Find out,” he said. I did. I had to learn how nukes operated in less than two hours before going to the presser for the announcement. I was the only newsman who asked: “Will this be a boiling water or pressurized water reactor?” Hell, the PR types didn’t know. I did. I knew the in’s and out’s of each. Score one for me. I learned the beat quickly. I reported what the utility and the government didn’t want my readers to know. I wore a button given to me by my news editor: “Question Authority.” I found facts — so my readers found out something they needed to know.

I covered the construction of that plant — how it helped and hurt the local economy, whether the utility’s general contractor was using local union labor or bringing in its own non-union crews, what the impact of the finished plant would be on property-tax rates in a very small town. I covered the environmental protests over the plant, learning what happens to fish when warm water is discharged into a cool river. I covered the squabbles over the environmental impact statement and licensing hearings. Then there was the radiation thing …

I covered boards of selectmen and planning boards and school boards and conservation commissions. I did zoning appeals meetings, where commercial interests tried quietly to get land use restrictions altered. Not on my watch: I found out, because my newsroom godfather taught me the law — and showed me the corner of the town-hall bulletin board where the zoning board posted required legal notices in type so small you’d need a magnifying glass to read ‘em. I found out facts — so my readers found out something they needed to know.

I explained why school budgets ballooned. I wrote why property taxes were heading up — again and again. I knew the paper’s readership area, I knew the readers’ interests, and I knew all the back channels of local government. I wrote stories when a town official gave the town’s winter salt contract to an in-law.

Yep, I was a newsman. Began with a typewriter, an old LC Smith, Army surplus. Ended on Hendrix computer terminals with disk drives the size of dinner plates. Even ran a linotype once.

After 20 years, I had accumulated institutional memory of the news and names of 400 square miles of readership area. I had an encyclopedic Rolodex of politicians’ names and numbers, including the bars they drank at (and in some cases, their lovers’ home phone numbers).

After 20 years, I was barely 40, and I knew my craft. I knew the public-service mission: Protect the readers. Find the facts, and tell readers what they need to know.

But in today’s Sam Zell universe, I’d be toast. I’d have been bought out years ago or laid off. I would have become an extraordinary expense in the chase for maximizing shareholder profit. Me and my costly health-care benefits and Guild salary would have been dropped like a fiscally toxic hot potato.

And out the door I’d have gone — with that institutional memory, that massive Rolodex, that 20 years of experience of writing more than 10,000 stories and editing three times that and penning 2,000 editorials and columns. Maybe into PR, like so many have. Or maybe into attempts to try different venues for news, as a few are doing.

Imagine today’s me — the experienced journalist in his or her late 40s, or 50s, or 60s. At the end of the last century, newsrooms were well-stocked with versions of me. No more. Newspaper corporations in their unbelievable arrogance ignored the emergence of the Internet as a competitive force. Newspaper advertisers began switching media allegiances. The trend of declining ad revenue at newspapers has accelerated, complicated by the current dismal economy. Look at these third-quarter numbers:

• Print ad revenue down 19.26 percent to $8.2 billion. (Down 16.07 percent in Q2, down 14.38 percent in Q1)
• Online ad revenue down 3 percent to $749.8 million. (Down 2.4 percent in Q2, up 7.2 percent in Q1)
• Combined is down 18.11 percent to $8.94 billion. (Down 15.11 percent in Q2, Down 12.85 percent in Q1)

The modern me — experienced, knowledgeable, presumably unflappable — is a pricey commodity in a business that’s losing its shirt so badly corporate practitioners are trying to sell off big metro dailies such as E.W. Scripps’ Rocky Mountain News and McClatchy’s Miami Herald. The New York Times Co. wants to mortgage its grand edifice for $225 mill to maintain cash flow — and Sam Zell’s Tribune Co. has filed for Chapter 11. He ran its newspapers and their veteran journalistic abilities into the cold, cold ground of indebtedness.

The modern me is unaffordable. So there are fewer version of the modern me in the nation’s biggest dailies. Staffs at the New York Times and Los Angeles Times and other newspapers nationwide have been slashed.

Yeah, yeah, you say. Heard all this before. So what?

Illinois Gov. Rod Blagojevich, that’s what. The weird case of the bamboozling guv illuminates the weak underbelly of American Corporate Journalism. Writes syndicated columnist Kathleen Parker:

Latest score: The bums are winning. And the corrupt politicians are, too.

Thanks to mismanagement and debt, Tribune’s eviscerated newspapers are riddled with more holes than Al Capone’s enemies, while Illinois holds the nation’s highest gubernatorial incarceration rate. Three of the past eight governors have spent time in jail or prison. Blagojevich would bring the number to four.

If ever The Chicago Tribune’s renowned staff of swashbuckling reporters, cartoonists, editors and columnists (Mike Royko and Jeff MacNelly, RIP) were needed — or more sorely missed — it is now. Not that those still standing don’t do a heroic job, but they know what I mean. Staff cuts and shrinking news holes make it hard to keep pace when the enemy is communing with one’s own generals, as seems to be the case here. [emphasis added]

That’s why more, not fewer, modern versions of me are needed— to keep the Bums from winning. Blago’s a Big Bum, but every newsman and newswoman at a small local weekly or daily know bums like Blago exist everywhere. That’s why I’m still a journalism educator, trying to provide young men and women the education and common sense needed to practice a craft vitally necessary to the conduct of a fully functional and fairly operated democracy.

You know that $700 billion bailout of financial institutions overseen by Hammerin’ Hank Paulson? Outside of a simple pie chart I saw on CNN showing a breakdown of who got what, I don’t know if that dough is really being used effectively, honestly and fairly. I read there’s dozens of federal investigations into the financial markets. How seriously are those look-sees being undertaken by the feds? American Corporate Journalism won’t and can’t cover these things adequately.

And if you think the majority of blogs you read are well-stocked with veteran, experienced professional journalists who can keep tabs on corporate cheaters and government incompetents at local, regional and national levels, send me some of what you’re smokin’.

Some blogs provide useful commentary and analysis. But it takes well-trained, experienced journalists fully supported by adequate organizational resources to find out stuff readers need to know. Good journalism is expensive.

Veteran, experienced journalists find out facts — so their readers find out something they need to know.

Sooner or later, the free stuff online will be precisely worth that price – absolutely nothing.

The Tribune Co., publisher of what used to be some of America’s best newspapers and operators of 23 television stations, has filed for bankruptcy, citing nearly $13 billion in debt compared with $7.6 billion in assets.

Let’s make book: Who’s next?

Could it be McClatchy, the nation’s third-largest newspaper chain, which is looking for a buyer for its flagship, the Miami Herald? Or the New York Times Co., struggling with debt and trying to cop a $225 million mortgage on its year-old grand edifice of a headquarters in Manhattan to get more cash on hand?

Hey, how about Lee Enterprises, which owns 54 daily papers in 23 states? In the second quarter of 2008, Lee’s net income was down 87 percent to $2.8 million in part due to charges based on the falling value of its assets. What about Gannett? In October, Gannett said that “advertising revenue at its publishing business fell nearly 18 percent during the July-September quarter compared with the same period last year.”

Will it be E.W. Scripps, owner of the 149-year-old Rocky Mountain News, which Scripps offered to sell after reporting an $11 million loss through the first nine months of this year?

The newspaper business climate is the worst ever:

U.S. newspaper advertising revenue collapsed by nearly $2 billion, or 18 percent, in the third quarter, according to the Newspaper Association of America, an industry group. Even online ad revenue made a small U-turn for the second quarter in a row.

The year-on-year quarterly percentage decline is the worst since since the NAA has been keeping such records and represents an increasingly rapid deceleration that began in the third quarter of 2006, when total ad spending dropped 1.5 percent.

Tribune is filing under Chapter 11, which permits reorganization, rather than Chapter 7, which oversees liquidation of assets. Bankruptcy presumably provides equitable and fair treatment of all parties, but especially secured creditors.

But a reorganized Tribune — or any newspaper corporation or entity — following a bankruptcy proceeding is unlikely to produce fair and equitable treatment of 1) the public dependent on good, sound journalism or 2) the experienced journalists who produced that product who have been laid off or bought out over the past five years.

Won’t the emergent Tribune Co. — publisher of the Chicago Tribune and the Los Angeles Times, both journalistic shells of their former selves — merely be a reorganization of its current and failing business model? Will the idiot, er, “media titan,” who played a significant role in the Trib’s financial demise, still be in charge?

How about this crock ‘o’ candor from Sam Zell, who bought Tribune with other people’s money:

Over the last year, we have made significant progress internally on transitioning Tribune into an entrepreneurial company that pursues innovation and stronger ways of serving our customers. Unfortunately, at the same time, factors beyond our control have created a perfect storm — a precipitous decline in revenue and a tough economy coupled with a credit crisis that makes it extremely difficult to support our debt. [emphasis added]

Newspaper companies, especially the larger ones, own regional newspapers. These are the newspaper that in the past have had the necessary resources and journalistic clout to effectively hold government (and let’s include corporations) accountable.

No more. These big metros — The Times, The Washington Post, the LA Times, the Miami Herald, Hartford Courant, Boston Globe, Dallas Morning News, Seattle Times and the Post-Intelligencer, the Rocky Mountain News, the Denver Post, and so many other great American newspapers — no longer produce what they once did. Oh, they win Pulitzers. But careful checks of the size of their geographical coverage, their shrinking news holes, the increasingly shallowness of beat coverage, the reduction of bureaus, the increase in one-source stories, and the diminishing readership area redefined by circulation cutbacks all lead to a public less well served.

Thus, the inability of regional newspapers to practice good journalism benefits those governments and corporations whose motivations may not always be in the public’s interest. The public’s the loser here.

Instead of improving those papers, corporations have turned them into cost-cutting enterprises, shedding staff and circulation. Now those corporations are actively seeking to unload big regional metros — The Boston Globe, the Miami Herald, the Rocky Mountain News — all to shed costs. If your daily paper is a big metropolitan daily, it’s for sale — you just haven’t been told that yet.

Anyone in the market for an entity that’s losing gobs of money, has fired or bought out its best artisans, and has produced no credible response to its problems other than cutting more costs? Think you can turn that entity around?

So what should we watch as this impending wave of bankruptcies washes ashore?

• Did top management get canned? Who replaced the outgoing miscreants?
• Did independent, local entities buy controlling interests in local and regional newspapers?
• Did different business models emerge?
• What role, if any, did courts play?
• What become of the experienced journalists no longer employed by newspaper corporations? (More on that in a future post. They’re doing some interesting things.)
• Would you buy a newspaper from the reorganized corporation?

The news biz as we’ve known it is about to go belly-up. What will replace it, and will the public benefit?

The 20th century saw the rise and dominance of the US as a global socio-political force. It was the umbrella which covered media, military, financial, educational and political superiority. But all of those entities are now superseded by one piece of the overall puzzle – the financial system.

If there is any question in who is the dominate partner in this S&M relationship, take a look at the size and scope of the bailouts of the financial system by the governments they are suppose to serve. Just the US bailout packages total up to $4.6165 trillion dollars; that’s more than the Marshal Plan, the Louisiana Purchase, NASA and the race to the moon, the Vietnam and Korean Wars, the invasion of Iraq, and the New Deal combined after you adjust for inflation. When the financial world asks “Who’s your daddy?”, the rest of the world whimpers.

But the unfettered power has gotten to Mr. Moneybag’s head, and it’s starting to collapse under its own weight. Going back to Rome’s downfall, we can see the barbarians storming the gate today. In the 5th century, the Vandals sacked Rome. In 2001, al Qaeda sacked New York’s financial district. The economic bureaucracy can no longer protect its trade routes from pirates as a living being can’t defend its bloodstream from parasites.

Looking at the sub-prime mortgage crisis, everyone in the chain, from the poor house buyer to the fund managers turned a blind eye to the risks they were taking, because everyone else was making it too. And they can’t be all wrong, right? This shared burden of irresponsibility meant that they were all dragged down by it in the end. The markets are inept in policing itself and so the cancer eats away from the inside.

Now, you may think that this essay is just a critical look at the dangers of having just one aspect of global society dominating the rest, but its true purpose was to say I am the king of tortured mixed metaphors!

I begin with this because in the last month or two some of my progressive allies have been getting on my nerves. Case in point: the just-won’t-die AIG fake scandal. Many of the Dem types I read and occasionally interact with are fine people with noble intentions and a relentless commitment to working for a better and more equitable society, but not all of them have much in the way of actual experience and knowledge where the conduct of real business is concerned. Sometimes I find myself reading opinions and “analysis” that make me wonder what kinds of jobs the writer has actually had. Beltway progressive advocacy org: check. Low-level Congressional staffer: check. Job with for-profit business: not so check.

The unfortunate upshot is that some of these folks wind up talking out of their asses.

When the story of AIG’s $400K retreat broke, my colleague JS O’Brien, whose impeccable, unimpeachable progressive credentials are augmented by tremendous amounts of business experience and particular expertise as a compensation specialist for large corporations, penned an informed, reasoned, insightful explanation for why this wasn’t a scandal at all. I injected this piece into a raging debate on one of my lists, and followed it up with some comments of my own – because I, too, have spent a good portion of the past couple decades working in and with corporate enterprises of one sort or another. Here’s what I said:

It’s not about whether the thing COULD be done so much as it’s about whether doing it one way gets better results than another. What JS O’Brien explains in the post is dead-on – a big part of my job over the past few years has been sales training and I’ve worked one president’s club for a big company that was my client. Salespeople respond to money, sure, but you won’t believe the lengths they’ll go to in order to earn their way into the PC.

At the core, this is a math question. Spending $X might seem extravagant (and the one I worked was in fact quite extravagant), and it’s easy to point to it and say hey, that’s ridiculous (or even obscene, if you like). But if spending $X results in behavior that returns $5X, it’s not a bad deal at all. This is especially true when that $5X allows the company to expand, hire more people, enter new markets, and so on.

Additionally, that outlay goes to people who work for a living. Bartenders, grounds crews, all kinds of service types at the hotel and resort, and then you factor in the money these people spend shopping (often at local places) and on activities. For instance, the company I did the project for spent a small fortune with local tour businesses, like the mud-bogging tour I got to do. The kids running that tour were the furthest thing from fat cats, and the simple fact is that this one lavish corporate outing put a lot of money in the pockets of those that people like us are working on behalf of – if I might stereotype a second, the honest American worker.

By the way, the company I worked for at the time was a small consultancy made up of good people trying to survive some hard times (this was back in early 2004, I think, and the company was not in great shape). The money we earned was important to the firm and it was extremely important to a couple of people who worked there – myself included.

This is not as simple a case as the MSM has made it. I can’t say specifically in the AIG case whether the money they spent turned out to be a good investment, but in general it’s a common practice that produces results that are good for the people we care about.

Those in the forum who bothered to acknowledge me at all were dismissive, and one prominent member responded with something along the lines of: “Screw this. AIG should be hung.” I may not have his words exactly right, but this is the extent of his analysis. No evidence. No reasoning. No engagement with a single word that either JS or I had written. Just “fuck it – hang ‘em all.” It was like trying to debate a pre-schooler.

And of course, you can’t debate a pre-schooler, any more than you can an ideologue.

(I should make clear here – because I don’t want to be guilty of knocking down straw men – that not everybody on the left [and not everybody on the forum in question, either] is as simplistic and, well, silly as the person I call out above. In fact, a couple people who’ve had business experience wrote to make roughly the same point that JS and I were making. So all isn’t lost – I’m just hoping to hear more from the latter than the former over the next four-eight years.)

Tim Reason, writing at CFO.com, points out how genuinely non-outrageous AIG’s latest sins against common decency really are:

Financial planners, of course, recommend insurance products to their clients, so this is a marketing event for AIG. Moreover, AIG managed to get 93 percent of the tab paid for by sponsors, and the financial planners paid a registration fee and their own travel. AIG paid the remaining cost — about $23,000 — out of pocket. That works out to about $153 per financial planner — an extraordinarily low cost.

$153 per potential channel partner? Damn, where can my company find that kind of efficiency?

Not only that, but “the company has canceled more than 160 meetings or conferences in the past month.” Reason asks, quite rightly: what are companies supposed to do? Quit marketing?

If they did suspend business operations and refrain from profitable activity – which is pretty much what we’re talking about here – what possible way would it benefit … well, anybody?

Nobody has to tell me about out-of-control corporateering. Part of working in this world as long as I have involves seeing stupidity, excess, wastefulness, stupidity, greed and stupidity. A lot of America’s convicted corporate leaders deserve what they’ve gotten, and unfortunately too many others have been allowed to profit from incompetence and bad faith actions that wrought severe damage in the lives of good, hard-working citizens. I wish the very worst for these and will support, as strongly as I am able, business and regulatory reforms aimed at ending the looting once and for all.

But I won’t sit quietly while allegedly smart people pretend that all business leaders are criminals and that every expenditure is treason.

In a follow-up piece, Reason acknowledges past instances of bad behavior by AIG but sensibly explains that punishing good behavior is counter-productive. He then puts the onus on the press, the politicians and public, explaining that

The inability of the media, the government, and the public to distinguish between corporate excess and ordinary business is the result of the very same financial illiteracy that got us into this mess in the first place.

Exactly.

Now that the Busheviks have been deposed us progressives find ourselves in a new role, and this is going to be a particular challenge for those of us whose brands have been defined by outsider bitching. We have to find ways of harnessing our intellects and energies to the task of governance, of driving policy and reform, of finding a balance between supercharging that which is good about capitalism while disabling that which is bad.

I hope I’m able to do my part without getting drummed out of the Enlightened Brotherhood, but if that’s how it has to be, well, I’ve never been much of a joiner, anyhow…

When you pay for groceries with a credit card, you are making such a promise. You are declaring that, through the power of your effort, you will create sufficient value during the month ahead to earn an income. You do not earn your salary merely by showing up at a place of work. You earn it by applying your skill and time to performing a task that creates value. The more of the intellect and learning you bring to bear on that task, then (hopefully) the greater that pay-check.

Only once you have earned that money can you pay off the debts — the promissory notes — that you incurred. You, through your behaviour, have brought new value and new cash into the world.

Only with this ability to borrow money that does not yet exist can we overcome the inertia of needing cash to create new value. Without being able to borrow we are limited by what we already have. Debt creates real opportunities for equality.

Without debt, the impoverished could not better themselves. The only educated people would be those who are fortunate enough to have parents with sufficient cash to pay for their educations. Students who borrow money in order to improve their skills through an education are doing so in the knowledge that the value of their future work will be so much greater than the value of their current work that it will pay for both the debt, and their future lifestyle.

The average person would never be able to afford their own home without the opportunities that debt offers them. There are few who could afford, from a monthly salary, to pay for both a large rent and sufficient savings to eventually buy a house for cash. A loan allows you to live in the house you don’t yet own on the promise that you will eventually pay off the debt required to buy it.

When an individual consistently fails to pay back their debts — the promises they made about the value of their work — then they will lose the confidence of lenders and will be denied future opportunities to borrow.

When a lender consistently fails to make wise decisions about who may borrow then they lose the confidence of those who, in turn, have pooled their cash to lend to the lender to lend to another. Then all those promises — the confidence in the value of the future — collapses in one terrible mess.

Cash doesn’t require much from people who exchange it for goods. No one will question the authenticity of the motives behind a person with physical cash in hand. Dictators and tyrants go on shopping trips with as much aplomb as saints and benefactors.

Debt is different. It requires a moral code between the lender and the borrower. There has to be a degree of trust and honesty between them. If the borrower genuinely intends to fulfil on their promise, if the lender genuinely believes that the loan is within the grasp of the borrower to repay, then there can be a transaction. If the borrower suffers a misfortune then such a relationship must be renegotiated. The process of borrowing is founded on the honesty and integrity of the parties to the transaction.

The credit crunch was caused by a weakening of that morality; of lenders and borrowers who assumed that rapidly rising house prices would keep rocketing effortlessly upwards without any effort of their own. Lenders failed to check the abilities of borrowers to repay if the markets turned. Borrowers failed to remember that they will have to repay if the rising market does not.

Whatever else may come of the disasters playing out in the credit markets today, future value, and opportunities for the poor to invest in themselves and create meaningful wealth, will only come about from a robust and healthy credit market.

The Moral Bankruptcy of the Pope

Pope Benedict XVI has already declared where he stands in the world of sophisticated financial instruments. “The pursuit of money and success is pointless,” he said at a meeting of bishops in Rome at the beginning of October. “The word of God,” he said, “is the foundation of everything, it is true reality. And in order to be realists, we must count on this reality. We must change our ideas that the material, solid things, that which can be touched, is the more solid and more secure reality. … We see this today in the collapse of the major banks: this money is disappearing, it is nothing. … Only the word of God is the foundation of all reality, enduring like the sky, and even more than the sky, is reality. We must therefore change our concept of realism. The realist is the one who recognizes in the Word of God, in this apparently feeble reality, the foundation of everything. The realist is the one who builds his life on this foundation that remains forever.”

Those of us who are realists find this overt distortion of the definitions of reality disturbing. The claim that the immeasurable, improvable and unexplainable is a solid foundation for proof and reality is a step towards superstition and the tyranny of those who claim to have some special connection to the unreal over those who do not.

The Catholic Church has been rocked by its own scandals before. In 1498, the pope was Rodrigo Borgia, reigning as Pope Alexander VI. He had various children by various mistresses, including Cesare who was the model for Machiavelli’s The Prince, and a daughter, Lucrezia. And Lucrezia had a child. In 1501, the Pope acknowledged paternity of what would be known as the Infans Romanus. However, Lucrezia was never sure which of her various lovers had sired the child. Lovers who included both her father and her brother, Cesare.

This had little impact on the moral authority of the pope to dispense his version of justice, and to demand that those accused of infractions buy forgiveness from the church.

Psalm 104:5 says, “the Lord set the earth on its foundations; it can never be moved.”

“Eppur si muove,” said Galileo after his trial. “And yet it moves.” In 1633, over 100 years after Magellan had proven decisively that the earth was indeed round (despite papal assurances to the contrary), Galileo stood trial for promoting the theories of Copernicus, that the earth moved as part of a larger universe of which it was not the solid centre.

On 31 October 1992, Pope John Paul II formally recanted Galileo’s finding of guilt by the church and recognised that the earth does, indeed, move.

Despite all this collectivised and organised ignorance, the Catholic Church has not voted itself out of existence or been disgraced beyond return. Even the very real sex abuse cases levied against the organisation has done little to discredit the pope’s continual determination to act as an arbiter of morality.

Yet, that moral authority is supposedly sufficient for the pope to declare that it is satisfactory to stop making money.

If we do so, how else are we to improve the lives of the poor? Oh, that’s right, the meek shall inherit the world and so it is sufficient to keep the poor as submissive slaves to the awfulness of their lives, as long as it also keeps them submissive to the will of the church.

The requirement of Reason over Faith

Democracy, too, has had its share of abuses. Tyrants from Mussolini to Mugabe have traded slim parliamentary majorities into de facto rights to rule indefinitely. Military leaders, as occasionally the only possessors of guns, often trade this asymmetry into a snatch at power during political uncertainty. Pakistan, Thailand, Burma and even tiny Fiji are all dominated by their armies.

Across the world people continue to protest and die for the right to self-determination and self-expression. Even an experience of imperfect democracies, as in much of Africa, does not seem to put people off demanding democracy.

This too is the battle of reason over faith.

The belief that a single leader can have both the knowledge and moral authority to know and determine everything that every individual may need requires a concerted act of faith. It requires faith to believe that a central collective can manage the diverse and complex network of interrelationships between individuals and production. It requires that a leader who, after making a call to unreality, be trusted because of this call for faith rather than because he has reasoned his actions.

But democracy means that people approach each other as equals, with reason determining a mechanism for interacting and settling disagreements.

Capitalism is also an act of reason. All collective organisations require that one have faith in the leadership who claim to represent that collective. That they do not need to be directly answerable through voting or purchasing behaviour but that we take on faith our ability to trust them, because they act in the collective’s name.

Capitalism says that I buy the things I want; that I trade value for value. If you defraud me in some way, I make a call to reason through courts that are themselves independent and reasonable. And the act of offering credit within a capitalist system offers the ability for those who do not yet have cash and wealth and prestige to earn their way into it by leaping ahead of their immediate means.

Ending poverty through mechanisms other than free trade and debt instruments requires an act of faith. Where will the wealth come from to end starvation and deprivation? Trust me.

So even though credit is now difficult to come by; even though trust between institutions and individuals has weakened, there is still only one reasonable way for us to create a just and equitable economic system.

Credit must again provide an opportunity where a moral promise about the future becomes a valid and valued present benefit.

The second company, Philip Morris, is suing using a totally different legal logic. They say it’s an unconstitutional abridgment of their First Amendment right to free speech.

In 2003, the Supreme Court dismissed Nike, Inc., et al, Petitioners v. Marc Kasky (with dissents on the dismissal by Justice Breyer and Justice Kennedy). According to the dismissal concurrence (linked above), the case essentially involved a private California citizen (Marc Kasky) suing Nike for unfair and deceptive practices under California’s Unfair Competition Law, specifically that “Nike made a number of ‘false statements and/or material omissions of fact’ concerning the working conditions under which Nike products are manufactured.” Nike’s response was that Kasky’s suit was unconstitutional since Nike had a First Amendment right (ostensibly guaranteed by its status as a juristic person) to say anything it wanted in its “commercial speech” (ie advertising). The Supreme Court initially granted, and then subsequently dismissed without deciding the constitutional questions, a hearing on this issue.

According to the San Francisco Chronicle article, Philip Morris is claiming that “‘…the purpose and effect of the ordinance is to suppress communications directed to adult smokers, in violation of our constitutional rights’, said Joe Murillo, a lawyer representing Philip Morris USA.” Understandably, the director of the city’s Department of Public Health, Mitch Katz, is not impressed:

“Do you remember any part of the Bill of Rights being about pharmacies selling tobacco?” he asked. “Philip Morris has fought every attempt by public health officials to save lives by curbing smoking … It’s a badge of honor for anyone in public health to be sued by Philip Morris”

It’s probably not a coincidence that Philip Morris is suing in California, the same state that brought the question of corporate personhood and First Amendment protections for commercial speech before the Supreme Court previously. California was one of the first states to adopt false advertising legislation (Sections 17500-17509 of California State Law), and California’s restrictions on both advertising and unfair competition are quite strict. In addition, California is the nation’s largest single market and as such it drives much of the nation’s regulations(which is why energy and automobile companies fight tooth and claw against California’s strict carbon emissions law, among others). A win in California would have a great deal of influence on regulations throughout the rest of the country, including at the federal level with the Federal Trade Commission’s Bureau of Consumer Protection – Advertising Practices Division.

For more on corporate personhood, please visit Reclaim Democracy.

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Park for a minute and tell us something. After you’re elected president, what are you gonna do with those buffoons running the Minerals Management Service that collects each year oil and gas royalties of $10 billion from oil companies? The Interior Department’s inspector general says top officials there have been involved in “financial self-dealing, accepting gifts from energy companies, cocaine use and sexual misconduct.”

And while you’re at it, what about Nancy Nord, the acting chairwoman of the Consumer Product Safety Commission? You plan to let her keep on defending “trips she took that were paid for by the industries that her agency regulates“? You gonna let her keep on telling Congress that her agency does not need a larger budget to police the the industries that produce the nation’s consumer goods?

You know, toxic goods like “the 518,028 tubes of toothpaste [falsely labeled as Colgate] worth an estimated $730,419 that were shipped into the country and distributed to bargain retail stores in several states last year”? Or the 21 million toys recalled because of excessive levels of lead paint?

And what are you gonna do about flip-flopper Stephen L. Johnson, the administrator of the Environmental Protection Agency who says “yes” until the White House, critics say, tells him to say “no”? Mr. Johnson initially told California it could limit tailpipe emissions from motor vehicles at higher-than-federal standards — but, critics say, reversed himself after a nudge from the Bush administration. Yes, he’s the guy who heads an agency that during the Bush administration once produced an annual federal report on air pollution with no section on global warming.

Yes, he was the guy in charge when the EPA — to save industry about $6 million in paperwork costs — instituted a “newly revised Toxics Release Inventory rule [that] will also make it possible for hundreds of large corporations to avoid reporting specific amounts of toxic chemicals they release into the air, land, or water, environmentalists warn.” [emphasis added]

And while you’re at it, do you plan to appoint someone as a commissioner of the Federal Communications Commission just ’cause he was a special assistant to the president, or a member of your transition team, or the general counsel to your campaign? You know, like President Bush did for current chair Kevin J. Martin?

You remember Mr. Martin, don’t you, the guy who faced “a congressional inquiry into the FCC’s procedures and allegations of flawed research studies, suppressing data, ignoring public input and holding hearings with minimal notice”? Yes, that guy, the one who told Congress that there’s no need to make rules to prevent an Internet service provider, like, say, Comcast, from creating “a ‘fast lane‘ for certain Internet content and applications” that would, in effect, create favored tiers of access for some commercial users over others.

And what are you gonna do about Education Secretary Margaret Spellings, who ducked any responsibility for the scandal rattling the $85 billion student loan industry with a bland statement that “We monitor these programs vigorously” and that the system was “crying out for reform”? And what about her work with No Child Left Behind, the 2001 law requiring schools to track the progress of students in math and English? Given that the government never fully provided the states with funding to appropriately enact the law, has it worked? How hard did she actually push for full funding? Should she stay? Go?

And there are so many others. Do you plan to examine the performance of the head honchoes in the Securities and Exchange Commission? Where were the regulators when financial institutions were tossing out subprime loans like candy? Did the SEC act with sufficient alacrity “to examine the role of the rating agencies in lending practices by the mortgage industry”?

You plan to retain Christopher Cox as chairman of an agency that’s supposed to regulate industry? Do you believe him when he says he’s “actively on the lookout for possible securities fraud?” You know, of course, that as a congressman he pushed a bill that would restrict investors’ ability to sue industry? And that as chair, critics fear he’s still pushing to protect industry, not regulate it? Is that the kind of SEC you want?

What about those fine folks at the Office of the Comptroller of the Currency, led by John Dugan? His bio says Mr. Dugan is the “administrator of national banks and chief officer of the Office of the Comptroller of the Currency (OCC). The OCC supervises about 1,700 federally chartered commercial banks and about 50 federal branches and agencies of foreign banks in the United States, comprising nearly two-thirds of the assets of the commercial banking system.” Hmmm. Big banks are tumbling fast and furious. You gonna keep him?

What about the Nuclear Regulatory Commission? It will become more on the spot as the nuclear power industry gears up to do its self-promoted part in ending our reliance on foreign energy sources. What about those agencies with lots of words in their names that deal with transportation safety in the air, on land and over the water? ‘Cause you know, of course, that the nation’s infrastructure is screwed up beyond belief. Who’s gonna fix it for you? And are you gonna keep on selling off interstate highways and other infrastructures to private investors instead of refurbishing them?

And was creating the Department of Homeland Security really a good idea? Who’s gonna untangle that debacle? And, sheesh, who are you gonna name to run FEMA?

C’mon, Barack. ‘Fess up, John. You are fully aware that as president you determine through your constitutional appointment authority how your administration functions through the roughly 2,000 people you name to administer federal departments and agencies.

So back off those lame, endlessly repetitive stump speeches. If you continue to claim the federal government is a) inefficient, b) too large), c) too small, d) ineffective or e) all of the above, talk turkey. Name names. Tell voters precisely the credentials and qualifications you’ll be checking off on folks who apply to work in your administration.

You’ve been lucky so far. The big-time media “analysts” and “commentators” and “contributers” and “anchors” have let you off the hook. You get to divert our attention from the core of governmental chaos by talking only about gay marriage (good? bad?), Iraq (in? out?), Supreme Court appointments (no litmus test?), elitism (him, not me!), education, (more teachers now, please), crime (more police now, please), illegal immigration (it’s really bad, of course!). You get to avoid most of what really counts.

So give us the real red meat. Who’s really gonna run the government? Tell us.

And we know you’re not going to be personally sifting through a gazillion résumés to fill thousands of government posts. So who’s gonna do that?

Your “transition team,” of course. Why don’t you tell us now instead of after the election whom you’ll appoint to that team? The makeup of your transition team will tell us much about the qualifications you’ll be looking for in your administrative appointments.

But, of course, you won’t talk about this. Presidential candidates rarely do. And our wonderful media, far more interested in personalities, horse races and conflict (because conflict is what really sells papers and pumps up TV ratings), will harrumph, harrumph mightily and ask more stupid questions that you pretend to be offended by.

You’ve really got it easy, don’t you?

I give up. I’ve collapsed under the oppressing weight of lies, prevarications, deceits, “policy adjustments,” rhetoric, no-longer-operative statements, attack ads, Perino-isms, cunningly packaged spin, and Rovian stump speeches with the rhetorical content equivalent to the unflushed contents of a toilet bowl.

Would someone please make possession of a Teleprompter a federal crime, punishable by listening to Rush Limbaugh 24/7 for life? Or Al Franken, for that matter? Can we stop the incessant harangue so reminiscent of “Father Knows Best” or, in the event Sarah Palin is speaking, “Mother Knows Best”? Or Hillary or Bill: “We Know Best”?

Now, if you do what I did for a living for 20 years (that journalism gig) and get enough advanced degrees and then do the professor shtick for 15 years, presumably you have the intellectual capacity and analytical ability to ferret out the posings of these all-knowing rodents.

But it’s too much. This pervasive, invasive crap comes at you in massive waves of media-borne and commentator-massaged messages crafted with a solitary purpose — to take something from me. It might be a vote. It might be money. It might be my soul. But they want something, and they’re willing to suspend any code of morality to get it. And you know who they are, don’t you?

I surrender. They win. The constant rush of words blending into a sheen of believability (polished quite nicely by those big-name “journalists” or CNN “contributors” purporting to “interpret” those words for the appropriate “truth”) has exhausted me. As the Borg said, “Resistance is futile.”

Because so many “sources” who have anointed themselves as “credible” have told me carefully orchestrated, artfully documented “truths” for so long, I no longer need to independently understand or articulate the political, social, cultural and economic “truths” around me. I now depend completely on them to tell me the “truth.”

They tell me whose fault everything is. So I blame whom they tell me to. They tell me whom to fear, so I’m afraid of those they tell me to be afraid of. It’s not that I no longer need to be told what to think and what to think about, it’s just that it’s become so much easier to be told rather than to choose.

When Telepromptered “truth” pours forth, I’ll simply look for the applause sign and clap when it tells me to. Yeah, that’s it. I’ll look for that neon sign that signals me that the “truth” is about to stride onto stage.

It had better be careful, though. That stage is already crowded.

Moral coda: Don’t. Trust. What. They. Say.

image credit: The Truth Group

With the bailout of Freddie Mac and Fannie Mae, the Reagan revolution has at last realized the robber barons’ dream: privatize the profits and socialize the debt. Nicely done, fellas.

— a letter to the editor of The New York Times from Candida Pugh of Oakland, Calif.; Sept. 10; emphasis added.

We now see the compensation wasn’t deserved. I don’t think taxpayers want their money to go to the C.E.O.’s of these very large institutions.

— Sen. Chuck Schumer, D-N.Y., on the exit pay packages of Daniel H. Mudd of Fannie Mae and Richard F. Syron of Freddie Mac who, The Times’ Eric Dash reports, are eligible for as much as $24 million in severance, retirement benefits and deferred compensation; Sept. 10.

The report says that eight officials in the royalty program accepted gifts from energy companies whose value exceeded limits set by ethics rules — including golf, ski and paintball outings; meals and drinks; and tickets to a Toby Keith concert, a Houston Texans football game and a Colorado Rockies baseball game.

The investigation also concluded that several of the officials “frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and gas company representatives.”

— from a Times story by Charlie Savage on reports filed with Congress by Earl E. Devaney, the Interior Department’s inspector general, on “wrongdoing by a dozen current and former employees of the Minerals Management Service, which collects about $10 billion in royalties annually and is one of the government’s largest sources of revenue other than taxes”; Sept. 10.

Education is obviously not the issue Senator McCain spends the most time on. He’s been a quiet and consistent supporter of parents and educators who he thinks are making a difference.

— Lisa Graham Keegan, a McCain adviser and former Arizona education commissioner, explaining the brevity of presidential candidate John McCain’s education plan but suggesting that it should not be interpreted as a lack of commitment to education; Sept. 9.

I’m really frightened. I’ve been in blizzards and tornadoes, but never a hurricane. It’s frightening, but if the Lord’s going to take you, he’s going to find you wherever you are.

— Ginger Saracco of Galveston, Texas, after watching a storm surge from Hurricane Ike slam into a seawall; Sept. 12.

That project is moving right ahead. The money for that project was not diverted anywhere else. … So (for her) to say she said, ‘Thanks, but no thanks….’ I would say she said, ‘Thanks!’

— Tony Knowles, who served as governor of Alaska from 1994 to 2002; an Anchorage Daily News story by George Bryson says Republican vice presidential nominee Gov. Sarah Palin “still supports spending $400 million to $600 million on ‘the other Bridge to Nowhere,’ the Knik Arm Crossing, which would provide residents in Palin’s hometown of Wasilla faster access to Anchorage” according to Gov. Knowles; Sept. 11.

[Gov. Sarah Palin] strikes me as a target-rich environment.

— Saturday Night Live writer James Downey; Sept. 12.

He was on the wrong side of the rope line. It is a decision that is hard to comprehend.

— Sen. Frank R. Lautenberg, D-N.J., about former Democratic Sen. Joseph Lieberman’s visibility as Republican pitchman for Sen. John McCain; Sept. 9.

YouTube was being used by Islamist terrorist organizations to recruit and train followers via the Internet and to incite terrorist attacks around the world, including right here in the United States. I expect these stronger community guidelines to decrease the number of videos on YouTube produced by al-Qaeda and affiliated Islamist terrorist organizations.

— from a statement by Sen. Joseph Lieberman exhorting YouTube to ban videos that “incite” violence; YouTube agreed to ban some content in response; Sept. 12.

Your prayers reached where they were meant to reach. The truth prevailed.

— Jacob Zuma, president of the African National Congress, as his theme song, “Bring Me My Machine Gun” played, after a South African judge threw out “racketeering, corruption, money laundering and fraud [charges] related to a multibillion rand government arms deal in the late 1990s”; a New York Times story says “A court in Durban convicted Mr. Zuma’s business adviser of funneling about $170,000 to Mr. Zuma in exchange for help in winning contracts”; Sept. 12; emphasis added.

[I will not] respond to the garbage from the American empire.

— Tarek El Aissami, appointed Venezuela’s interior minister on Monday, responding to a report by The Times‘ Alexei Barrioneuvo that “[a] conspiracy to cover up the intended recipient of a suitcase filled with $800,000 in cash found in Argentina last year reached the highest levels of Venezuela’s government, with President Hugo Chávez ordering the head of his intelligence service to handle the situation” according to court testimony; Sept. 9.

These settlements are a major step forward in cleaning up an industry where false and misleading advertising practices have been all too rampant. It is unconscionable for lenders to entice students into loans that are not best for them.

— Andrew M. Cuomo, New York’s attorney general, on a settlement with seven student loan companies that outlined a code of conduct and required that “a total of $1.4 million [be placed] into a fund to help educate students and their families about financial aid,” reported The Times‘ Johnathan D. Glater; Sept. 9.

That statute is unconstitutionally overbroad on its face because it prohibits the anonymous transmission of all unsolicited bulk e-mails including those containing political, religious or other speech protected by the First Amendment to the United State Constitution.

— from a ruling by the Virginia Supreme Court today striking down the commonwealth’s “anti-spam” law after reconsidering the conviction of Jeremy Jaynes of Raleigh, N.C., the first person tried under the law, convicted of sending tens of thousands of e-mails through America Online servers, and sentenced to nine years in prison; Sept. 12.

Q: With another anniversary of 9/11 upon us, how does the President feel about the failure to find Osama bin Laden?
MS. PERINO: President Bush has been working and directing thousands of men and women across our intelligence community to help us find Osama bin Laden, his deputies, and to disrupt plans to attack America again, wherever they might be plotted. He has not let up on that, and that fight and that hunt will continue to go on until he is brought to justice.

— exchange between reporter and press secretary Dana Perino at a White House briefing; Sept. 10.

The Republicans talk a lot about experience. When you’re the author, architect and enabler of eight years of devastating foreign policy mistakes, that’s not experience. It’s very bad judgment.

— Senate Majority Leader Harry Reid, D-Nev., arguing that Sen. John McCain, R-Ariz., lacks the temperament and judgment to be president; Sen. Reid said, “Our dangerous world calls for leaders with sound judgment, not those with a temperament prone to recklessness. Our country deserves more than token shifts and lip service to change. We need to take decisive action to reverse eight years of foreign policy mistakes”; Sept. 12.

Now let me review some of the descriptive phrases that have been used by some of you that have made my own personal interfaces with the Press Corps difficult: “dictatorial and somewhat dense,” “a liar,” “a torturer” “does not get it.” In — In some cases I have never even met those that use those comments. Yet they felt qualified to make character judgments that are communicated to the world. My experience is not unique and we can find other such examples as the treatment of Secretary Brown during Katrina. In my opinion, this is the worst display of journalism imaginable by those of us that are bound by a strict value system of selfless service, honor, and integrity.

— from an address to the Military Reporters and Editors Forum Luncheon by Lieutenant General (Ret.) Ricardo S. Sanchez; Oct. 12, 2007.

Q: Is Osama bin Laden as important now as he was seven years ago?
MS. PERINO: I think that what we have tried to do is disrupt any area from becoming a safe haven where terrorists could plot and plan attacks. The leadership of al Qaeda has largely been replaced over the years, but they have more people that keep coming up through the ranks and are trained to plot and plan against us. I think — the President believes it’s important for us to hunt and track down and bring to justice Osama bin Laden. And it would be important for Americans, but it’s important for justice most of all.

— exchange between reporter and press secretary Dana Perino at a White House briefing; Sept. 10.

The rise of a free and self-governing Iraq will deny terrorists a base of operation, discredit their narrow ideology, and give momentum to reformers across the region. This will be a decisive blow to terrorism at the heart of its power, and a victory for the security of America and the civilized world.

— from an address by President Bush at the U.S. Army War College in Carlisle, Pa.; May 24, 2004.

I’m sitting at Eros, a Greek diner on Seventh Avenue, loving my omelette as I seek shelter from the rain, when I see a busboy remove a container of dirty dishes — with a copy of my review in today’s paper on top. Get it while it’s hot, I guess.

— from the “On The Runway” blog of New York Times fashion critic Cathy Horyn; Sept. 9.

photo credits:

• Hurricane Ike hits Galveston: Associated Press
• Sen. Joseph Lieberman leaving stage: Damon Winter, The New York Times
• Sen. Lieberman mug: Alex Wong, Getty Images
• Steve Jobs: Daniel Acker, Bloomberg News
• Gap models: Marcio Madeira, Style.com

Quotabull is a weekly feature of Scholars & Rogues.

The object of the political war is not to shrink the state or shut it down; it is to capture the thing and run it for your constituents’ benefit.

— from “The Wrecking Crew: How Conservatives Rule” by Thomas Frank; p. 39; emphasis added.

When our economy is hurting, the last thing we should do is raise taxes as Barack Obama plans to do and has done. The American people cannot afford a Barack Obama presidency.

— statement from Republican presidential candidate John McCain after the Labor Department reported that the national unemployment rate rose to a five-year high of 6.1 percent last month as American companies cut about 84,000 jobs; Sept. 5.

Today’s jobs report is a reminder of what’s at stake in this election — John McCain showed last night that he is intent on continuing the economic policies that just this year have caused the American economy to lose 605,000 jobs.

— statement from Democratic presidential candidate Barack Obama following the jobs report release; Sept. 5.

While these numbers are disappointing, what is most important is the overall direction the economy is headed. Last week, the economy posted a strong gain of 3.3 percent at an annual rate in the second quarter, led by growth in consumer spending, exports, and a well-timed and appropriately sized stimulus package. This level of growth demonstrates the resilience of the economy in the face of high energy prices, a weak housing market, and difficulties in the financial markets.

— statement from the White House after release of jobs report; Sept. 5.

Republican presidential candidate John McCain addressing the GOP convention.

The Walter Reed Middle School in North Hollywood, Calif.

[S]everal readers have suggested that perhaps one of the tech geeks charged with setting up the audio/visual bells and whistles for the evening was tasked with getting pictures of Walter Reed Army Medical Center but goofed and got this instead. At first I thought, No, that’s ridiculous. This is a major political party with big time professionals putting this together. Nothing is left to chance. I mean, is this the RNC or a scene out Spinal Tap or Waiting for Guffman?

— Josh Marshall of Talking Points Memo; Sept. 5.

If, after all, the eradication of all sin requires the effective elimination of all privacy, and if that, in turn, leads to the establishment of a trivial, oppressive, perhaps even totalitarian society, then it surely follows that a substantive and free society must be prepared to tolerate at least some sin. And that leads us, quite naturally, to the devices that tolerant societies employ to handle an acceptable level of sin: hypocrisy and privacy.

— from a commencement address by veteran broadcaster Ted Koppel at Stanford University; June 14, 1998; emphasis added.

You work quite hard. I’ve got to be in there with my hands. I’m 65, for God’s sake. I don’t want to do all that stuff anymore. … It’s dispiriting. This is just partisan poison, and after a while you get tired of covering it.

— from an interview with Britt Hume of Fox News, who is retiring after 32 years in television news; Sept. 5.

It’s discouraging. We’re going to fix the house, but I don’t know if we’ll ever be able to sell it.

— Racquel Barnhart, 38, of Pearlington, Miss, who experienced flooding from hurricanes Katrina and Gustav, on her desire to move away; Sept. 2.

Since passage of the Patriot Act, many companies based outside of the United States have been reluctant to store client information in the U.S. There is an ongoing concern that U.S. intelligence agencies will gather this information without legal process. There is particular sensitivity about access to financial information as well as communications and Internet traffic that goes through U.S. switches.

— Marc Rotenberg, executive director of the Electronic Privacy Information Center in Washington; John Markoff of The New York Times reports that “Data is increasingly flowing around the United States, which may have intelligence — and conceivably military — consequences”; Aug. 29.

We discovered the Internet, but we couldn’t keep it a secret.

— Andrew M. Odlyzko, a professor at the University of Minnesota who tracks the growth of the global Internet; U.S. share of Internet traffic has fallen from 70 percent to 25 percent; Aug. 29.

We’re not asking for extra work, but if operating results are better, I want to share this with the faculty. We think this is an innovative approach that benefits both faculty and administration, and ultimately benefits our students.

— Lester A. Lefton, president of Kent State University, on the school’s use of “a new and unusual tactic to improve its status, retention rate, and fund raising—paying cash bonuses to faculty members if the university exceeds its goals in those areas,” reports The Chronicle of Higher Education; the bonuses “are built into a contract, approved last month, that covers 864 full-time, tenure-track faculty members who teach and do research on the university’s eight campuses,” reported The Chronicle’s Kathryn Masterson; Sept. 5.

It is as if China has made a gift to the United States Navy of 200 brand new aircraft carriers.

— a Chinese blogger quoted in a Times story by Keith Bradsher, who reports that China’s central bank “has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac [but those] investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank’s tiny capital base. The bank’s capital, just $3.2 billion, has not grown during the buying spree …”; Sept. 4.

I have asked my accountant to review all the data recently made available to me by the Punta Cana Hotel in the Dominican Republic concerning my investment 20 or so years ago in purchasing a unit in that hotel for occasional use over the years. Once my accountant obtains and verifies the facts, I will follow his recommendations.

— statement from Rep. Charles Rangel, D-N.Y., who is chairman of the House Ways and Means Committee, which writes the federal tax code, on a report by David Kocieniewski of The New York Times that the congressman “has earned more than $75,000 in rental income from a villa he has owned in the Dominican Republic since 1988, but never reported it on his federal or state tax returns”; Sept. 5.

Q: I want to ask about Pakistan. Obviously, the Pakistani government is complaining about the U.S. military effort there, and it’s a pretty big departure from our past practice. Can you talk about what the communications have been like between the two governments? And also, can you talk about whether you all have concluded whether this was worth it?
MS. PERINO: Well, one, in regards to the reports about that incident, we have not commented and I won’t today. But what I will reiterate is that we’ve been working closely with the new civilian government of Pakistan that is feeling its way and working to establish itself. It obviously had a very big scare yesterday with an attack on the Prime Minister’s motorcade. And thankfully, that attack was not successful. We have a lot of cooperation that’s ongoing with them, and a lot of need to increase communication. And one of the things you saw just about three weeks ago was a meeting off the coast with Admiral Mullen and other generals, with their generals, so that we can work on jointly tackling the problems that we have in Pakistan.
Q: They’re not emphasizing cooperation. They’re emphasizing right now that they’re upset that this happened.
MS. PERINO: Well, I understand that. And we’re focused on trying to improve coordination and communication.
Q: Does that mean you’re trying to improve letting them know ahead of time when something like this is going to happen, or what does that mean?
MS. PERINO: I‘m just not going to comment on the incident in any way. And to answer your question, I would have to do that. So I’ll decline to comment on it.

— exchange between reporter and press secretary Dana Perino at White House briefing; Sept. 4; emphasis added.

Silence is disturbing. It is disturbing because it is the wavelength of the soul. If we leave no space in our music—and I’m as guilty as anyone else in this regard—then we rob the sound we make of a defining context. It is often music born from anxiety to create more anxiety. It’s as if we’re afraid of leaving space. Great music’s as much about the space between the notes as it is about the notes themselves. A bar’s rest is as important and significant as the bar of demi-, semi-quavers that precedes it. What I’m trying to say here is that if ever I’m asked if I’m religious I always reply, “Yes, I’m a devout musician.” Music puts me in touch with something beyond the intellect, something otherworldly, something sacred.

— from the commencement address by Sting at the Berklee College of Music; May 15, 1994.

There’s a shot! Oswald has been shot. Oswald has been shot. A shot rang out. Mass confusion here. All the doors have been locked. [pause] Holy mackerel!

— veteran TV newsman Ike Pappas, who had been an arm’s length from Lee Harvey Oswald when he was shot by Jack Ruby in Dallas, reporting the event live to listeners of WNEW radio in New York; Mr. Pappas died this week; Sept. 2.

The European Union has sent no warships to Georgia, because it does not believe in that kind of thing, and is now creaking its way through the painfully slow process of sending some civilian monitors to Georgia, just as soon as Russia gives its consent. Oh, and the EU has fast-tracked €1m in humanitarian aid, with an extra €5m to come later.

A weakened, distracted America has just promised a billion dollars (€700m) in aid for Georgia with about half of that earmarked for “fast-track” delivery, sent two warships to Georgia bearing humanitarian relief supplies, and is about to send the USS Mount Whitney, flagship of the 6th Fleet, into the Black Sea. It has also sent the vice president, as mentioned above.

In the words of the old joke, if that is a distracted America, I’d hate to imagine what an America with its eye on the ball might do.

— from the Economist.com blog; Sept. 4.

Stories yesterday pointed out that overcrowded hospitals [in Haiti] were being flooded, tens of thousands of the luckiest people were in some kind of shelters, and that there were entire families stranded on rooftops, not begging, but screaming for help.

On the same day, the Bush administration announced it would seek to immediately send $1 billion in aid to Georgia to help rebuild that country unnerved by Russian intervention in a brewing civil war.

Meanwhile, tens of thousands of Haitians have no homes, no food and no hope.

This isn’t the first time this ailing nation has been overlooked, Four years ago, the misery was nearly the same after two late-summer hurricanes left more than 80,000 people with absolutely nothing to eat. Disease was rampant as dead bodies floated everywhere, and the government couldn’t even find the machinery or fuel to create mass graves for thousands of dead.

The United States provided $60,000 in aid. It was embarrassing and cruel.

There’s not even a mention of any aid being funneled to the Haitians this time.

— from an editorial in the Aurora (Colo.) Sentinel; Sept. 3.

For many people — particularly anyone over the age of 30 — the idea of describing your blow-by-blow activities in such detail is absurd. Why would you subject your friends to your daily minutiae? And conversely, how much of their trivia can you absorb? The growth of ambient intimacy can seem like modern narcissism taken to a new, supermetabolic extreme — the ultimate expression of a generation of celebrity-addled youths who believe their every utterance is fascinating and ought to be shared with the world. Twitter, in particular, has been the subject of nearly relentless scorn since it went online. “Who really cares what I am doing, every hour of the day?” wondered Alex Beam, a Boston Globe columnist, in an essay about Twitter last month. “Even I don’t care.”

— from a discussion of “ambient awareness” in a New York Times Magazine feature by Clive Thompson headlined “Brave New World of Digital Intimacy”; Sept. 5.

photo credits:

• Sen. John McCain addressing GOP convention: Image Shack
• Walter Reed Middle School: Talking Points Memo
• Inner Harbor Navigation Canal in New Orleans: Skip Bolen, European Pressphoto Agency
• Sting: BBC
• Ike Pappas: Associated Press

Quotabull is a weekly feature of Scholars & Rogues.

No-one who watched Usain Bolt actually break stride, look around, slow down and beat his chest in victory 15 METRES BEFORE THE LINE could have any doubt that you are watching a supreme athlete.

Athletes are the supreme example of physical genius. An injury – one that regular folk wouldn’t notice – is something that threatens to shave 0.2s from your finishing time. A massive difference in the world of competitive sport.

The difference between free people and collectivists is never so clear than at the Olympics. During the Cold War, the USSR treated the event as a political endeavour. Heroes were less important than the shear weight of medals that they built up. In this Olympics, the Chinese are no different. Their government-funded, highly-sophisticated sports schools mould some 370,000 students a year. It is no wonder that they are able to claim so many victories in so many sports.

Governments can make up in volume, what they lack in showmanship. But they do not create heroes. And we love watching heroes.

The joy of competition

Fairness means different things in different contexts. Many people were disappointed when Bolt showboated the last 15 meters of the 100m. “He should have given it everything. It cheats the viewer,” said many.

We hate it when athletes cheat. When they take performance enhancing drugs, or somehow get an unfair competitive advantage. We don’t mind that athletes can be assholes. That they can be full of shit and arrogant. We’ll forgive any amount of tom-foolery … as long as they are the best.

Then we celebrate them, throw them parades and name our children after them. They become our great role-models. They are invited to our schools. They tell our kids to believe in themselves and to give their moments of competition absolutely everything they’ve got.

We love it when great athletes try to psyche each other out. Faking an injury on the football field. Staring each other down. We tell each other that sport is as much a head-game as it is physical. Who’s going to crack under the pressure of the final, of millions of people all roaring the names of their heroes at the same time?

And we demand that competition. We want to see them suffer. We want to see them burn. We demand that it hurt. And that they overcome all this. For this is what makes a hero.

When athletes cheat, they discredit themselves, but not their sport. In 1998, the entire Festina cycling team was turfed out of the Tour de France. The tour has had a regular problem with doping. US hopeful, Floyd Landis, actually won the tour in 2006 before being stripped of his title. The competition is so ferocious that there are few sports that can claim to have no moments of travesty. From Maradona’s “Hand of God” in the 1986 Soccer World Cup, to the Chicago White Sox throwing the World Series in 1919, to Ben Johnson’s 100 meters in the 1988 Olympics.

But the lying and cheating does not, usually, discredit the sport itself. We love our favourite sports. Our passion is all. The athlete may be humiliated and punished, but the game goes on.

But it all breaks down

There is another breed of people who are supremely gifted. Astonishing athletes. But not of the body. These are athletes of society. The great businessmen and entrepreneurs.

They too compete at the highest level for fantastic stakes. The winners stand to make a fortune. But they stand alone.

Henry Ford, creator of the Ford Motor Company; Henry J Kaiser, creator of the HMO; Ray Kroc, the genius behind McDonalds; JP Morgan, investment banking hero. None loved. None celebrated. It is only in recent years that we have found some, a small handful, of great entrepreneurs we are prepared to celebrate. People like Richard Branson of the Virgin Group, or Steve Jobs of Apple. But their compatriots, who have achieved as much, been as creative and excellent – Bill Gates of Microsoft, Sam Walton of Wal-Mart – are loathed and hated.

Anyone who has read Lance Armstrong’s “It’s not about the bike” could be left in any doubt about the concentration, ability and self-sacrifice required to win seven Tours de France. Neither would you be in any doubt that the man is an asshole and a prima donna. That doesn’t matter; he’s still a sporting hero.

Unlike Bill Gates and Microsoft, who is probably the most vilified man on the Internet (after George W Bush – not an entrepreneur).

Business is just as competitive as sport, if not more so. The stakes are as high, the margins as thin. It really does mean the difference between having a globally successful business if you choose to outsource your call-center to India, and going into Chapter 11. It really is important to have a good strategy, great marketing, supreme design and astonishing distribution. In which case you could have Apple or Wal-Mart or Tesco or Toyota. Or, they can be dragged down by bad management, following bullshit strategy and cheating their investors, like Enron or Parmalat.

Management fads are like coaching fads. Business strategy is like sporting strategy. It’s a head-game too. Can I out-psyche my competitors and my customers. How razor-thin can I walk the line to get ahead?

Like in a motor-race, the consequence of a fraction too fine can be awful.

But don’t ever doubt that the men and women who lead the world’s most successful companies are astonishing athletes who do what they do without applause and whose only means of measuring victory is the money in their pockets.

Maybe you think that the most outstanding business people are paid too much?

Steve Jobs of Apple earns around $ 122 million a year; Ray Irani of Occidental Petroleum earns around $ 86 million a year; Barry Diller of AIC earns $ 85 million … these are the top three highest-paid executives in 2007. The average remuneration of the CEOs of the 500 top companies is around $ 14 million a year.

In the same year, 2007, Tiger Woods was paid $ 100 million, Oscar de la Hoya, $ 43 million, Phil Mickelson $ 42 million. Yet the highest paid executives create, and sustain, thousands of jobs. How many jobs does Woods sustain?

So, why the friction? Why the loathing of our greatest entrepreneurs?

Adoring the game, loving the sport, celebrating the hero

There is a difference, of course. Partially, it is because executives mostly do what they do outside of public sight. It’s also because athletes don’t compete with you, and your only connection with them is on television.

Try and imagine what it might be like if every walk to the shops became a race against Usain Bolt? If your swim at the public pool was a challenge against Michael Phelps? If your every single moment you were confronted with the Olympian efforts of the best in the world?

Chances are you might start finding watching sports on television downright alarming.

Business is tactile. It’s immediate. The highly-paid executive is making a profit when you’re buying his product. You might resent that. You’ve seen the big-deal business get-togethers. Steve Jobs in front of thousands of people, launching the iPhone? Steve Ballmer pumping up a crowd at Microsoft? How about them oil executives discussing their exceptional profits on CNN Money while your tank of gas goes through the roof?

Makes you angry, doesn’t it? ‘Cos there – right there – it’s not a game. It’s your wallet. How dare they get so rich at my expense?

Except it isn’t.

Cards on the table. I love business. I adore it. The minutiae of pricing and packaging and distribution. Of design. Of cutting off a competitor. When Pantene was due to launch in South Africa and ran three months of adverts announcing the fact that their shampoo was going to change the country, I absolutely cheered when Organics – a rival shampoo maker – released A WEEK BEFORE PANTENE LAUNCHED a promotion selling TWO LITRES of shampoo for next to nothing! It’s genius. It’s brilliant. I still grin when I think about it.

I mean, sure, the Pantene investors must have felt like they’d received a groin-shot. There’s your expensive campaign undercut at the last minute by people who ran out to buy liters of your main competitor’s product. They wouldn’t need more shampoo for months and your whole launch strategy collapses right there…

You don’t think consumers benefited from this? Of course they did. The pure, unconstrained competition between business rivals lowered prices and increased quality.

The only time that it doesn’t is when some distortion in the market protects an incumbent. Either when they cheat, or when the game is rigged.

That is reason to hate the cheater, not the game itself.

Cheaters sometimes win

There are two ways the game can be rigged. Either a company can outright lie and use their size and muscle to bleed their competitors and consumers. Like Enron, like Parmalat.

Or, the government can skew the game in their favour. When the US government gives direct subsidies to the biggest farmers, they bias the market against small farmers. When lawmakers subsidize coal-plants and oil-producers, they distort the game against alternative fuels. When subsidies prop up car-makers and tariffs are levied against foreign manufacturers, it raises the prices of vehicles for consumers and props up weak competitors. When steel-makers get tax cuts, then other people have to pay higher taxes to make up the difference.

There are lots of ways that business is biased.

Instead of blaming business as a whole, blame the cheating. Work and campaign and challenge politicians to make businesses sweat and compete. And demand that competition. We want to see them suffer. We want to see them burn. We demand that it hurt. And that they overcome all this. For this is what makes a hero.

Yes, that does mean that some jobs will be outsourced to other countries but, you know what, it will result in new jobs that didn’t exist before. Look at sport. Usain Bolt’s victory does not deny other people their best times in the same event.

I’ll give you an example from my own research in South America in 2004. In Lima, Peru there is a garment district called Gamarra. In the 1960s, the Peruvian government decided to kick-start the economy with a state-driven textiles initiative. They took over this suburb in Lima and set it up. It didn’t work, becoming a desolate hell-hole frequented by gangsters. In 1983, they gave up and handed it over to private enterprise. There are now 18,000 businesses there. 600,000 people visit the place a day driving revenues of $1.2 billion annually in 34 city blocks. The government, as that link shows, claims the victory, but the people I interviewed in the business sector shook their heads. It was all them.

The lesson is this: when you sit on something and protect it, you exclude the opportunity for something miraculous to happen. The Chinese control their sport, they win lots of medals, but miracles don’t happen.

When you protect an entire industry you do so at the expense of what might happen if you didn’t. The Soviet Union protected their entire society from competition and change. When the walls came down, Westerners were living in the 21st century and they were living in the 19th.

There’s a joke about Soviet motor-cars. A worker has saved up for years and has finally been allowed to apply to get a motor-car. He walks to the nearest motor-factory and queues for several hours to buy. Eventually the factory foreman stands before him. He pays. “Come back in seven years on the 15th of July,” he is told. He isn’t asked for what type of car he’d like, or what colour it would be. He will take what the factory produces.

“Should I come in the morning or in the afternoon,” he asks.

“Why should that matter?” asks the foreman, in surprise.

“Well, that’s the day the plumber said he would come round to fix the washing machine and I don’t want to miss him,” says the man.

Loving it anyway

Who is the most popular Chinese athlete? Yao Ming, who plays basketball for the Houston Rockets in the NBA. And despite all the Chinese victories at the games, Usain Bolt winning the 100 meters for himself and for Jamaica will stand out for me as the highlight of the 2008 Olympics.

Yes, businessmen cheat. Yes, it’s fucking outrageous. Yes, it should be stopped and the bastards should go to jail. But it doesn’t damage my love of the game. Of business as the highest social ideal I can think of, just as Olympic sport is the highest physical ideal I can imagine.

I love watching a great athlete perform wonders. My heart soars when I listen to the finest musicians perform at their peak. My blood pounds when great actors tear the screen up and make me celebrate their craft. And when I hold a brilliant product – like an iPhone, or a Gillette Fusion, or a Mazda MX5, or a DisaVascular coronary stent, or even a pair of Salomon hiking boots – I am fully aware that human beings made this. That someone had vision, and genius and could bear the pain of getting it to market, of defying the odds of failure, of dreaming big, of pushing their limits, that it is here, that it exists, and that – should I want it – I can own it.

You can’t say the same about a sporting victory. No matter how brilliant, I can’t buy it. But I can buy a phone, I can buy a camera. I can support my heroes materially, and directly.

I take the competition of business no less seriously than does the greatest sporting fan. I celebrate the victories, I sob through the defeats, I damn my enemies, I declaim the cheats.

And I love the game.