Thursday, July 20, 2017

The Unenforceable E.U. as Poland Legislates to End its Judiciary’s Independence

With a state government rapidly moving on legislation that would end the independence of that state’s judiciary, the E.U. Commission announced that it would invoke Article 7 against that state. An independent judiciary is a staple of democratic governance, and is thus required of a state (as well as at the federal level, in regard to the independence of the European Court of Justice from the other branches of the federal government).  If invoked, Article 7 of the E.U.’s basic (i.e., constitutional) law would deprive the state of Poland of its voting rights at the federal level. The independence of state courts is that important in the E.U., and yet for the article to go into effect, the European Council’s vote, excepting Poland, must be unanimous. Already, the governor of the state of Hungary had made clear that he would vote against invoking the article—that state having its own constitutional troubles with the E.U. Commission and being friendly with Poland.  In other words, two conflicts of interest came into play immediately, even as the Polish legislature was still voting on the proposed judicial reform.

The legislation “would force all the [state’s] top judges to resign, except those [the party in power] appointed.” In fact, the government would have “control over who can even be considered for a judgeship.”[1]  In response, Frans Timmermans, first vice president of the European Commission, said the legislation “would seriously erode the independence of the Polish judiciary” and in fact “abolish any remaining judicial independence and put the judiciary under full political control of the government.”[2] Such a condition would violate the basic principles of the European Union, which, like the United States, requires every state to have the republic form of government, which includes an independent judiciary to protect citizens from governmental tyranny at the expense of liberty.

Whereas it is easy to criticize the Polish legislature for its proposal to upend a vital element of a republic, the E.U. itself was culpable too. Specifically, to require that every state except the offending state agree before Article 7 can be enforced even on a matter as important as an independent judiciary in a state—in making it so difficult—the E.U. willfully makes itself vulnerable to its own defeat from a democratic standpoint. Common sense alone would say that very serious violations should not be subject to extremely high hurdles. Lest it be argued that unanimity can be expected if a violation is truly very serious, the Hungarian governor’s willingness to exploit conflicts of interest suggests that it is pure folly to pretend that alliances do not exist between states in a federal union. 

In general, such a union that permits itself to be hamstrung in enforcing its basic law is charity case befitting Nietzsche’s conception of weakness by abnegation. In other words, the E.U. looks pathetic in subjecting the enforcement of its basic law to such high hurdles that allow the exploitation of conflicts of interest to protect an unconstitutional state government. More generally, the self-inflicted wound in the federal enforcement powers—a wound stemming from still too much state sovereignty—blocks the check-and-balance benefit of federalism. In a healthy federal system, the federal level can provide a check on excesses on the state level, and vice versa. The “dual-sovereignty” in the system cannot be so unbalanced that one state can block federal enforcement against another state. If the E.U. state governments believe that the E.U.’s basic law is important to the Union in being able to function, let alone continue to exist, then those same governments should be willing to let go of unanimity in the enforcement of federal law. Put another way, the federal level should not have to rely so much on the state level—even one particular state—in being able to enforce federal basic law. Or is such law really not very important to the state government officials?

[1] Rick Lyman, “In Poland, an Assault on the Courts Provokes Outrage,” The New York Times, July 19, 2017.
[2] Ibid.

Essays on the E.U. Political Economy: Federalism and the Debt Crisis

The collection of essays comprising The E.U. Political Economy looks broadly at the E.U.'s federal system, with particular attention to the states, including the matter of "Brexit," which refers to the secession of Britain from the Union. The text then turns more narrowly to the government-debt and banking crisis that occurred in the wake of the financial crisis of 2008. The backdrop of federalism is meant to convey the point that weaknesses in that political system hampered the E.U.'s handing of its states and banks that were in trouble with debt. Lastly, several essays are presented on some more general aspects of the E.U.'s political economy. Rather than being heavily theory-oriented, the essays draw on contemporaneous news reports to quote from practitioners from business and government.

Essays on the E.U. Political Economy is available at Amazon.

Tuesday, July 18, 2017

U.S. Senators: Falling Short in Representing their States

Like the European Council of the E.U., the U.S. Senate has polities rather than citizens as represented members. That is to say, in both cases, the states are represented. In the case of the E.U., the chief executives of the respective states represent them. In the U.S. case, the citizens of the states elect senators directly, who in turn are tasked with representing their respective states. From the standpoint of representing the polities, the E.U. case is tighter, for a U.S. senator is susceptible to the temptation to vote in the interests of the state’s citizens who voted rather than of the state itself. The two interests may overlap, but they are not identical, for citizens of a member-state may or may not be interested in protecting the prerogatives of the state (government). The Republican legislative responses to the Affordable Care Act (i.e., “Obamacare”) are a case in point.

Under the Act, state governments could expand their Medicaid programs to cover anyone with incomes less than 138% of the federal poverty level, with the federal government picking up the tab through 2018 and 90% thereafter. Even Republican-controlled state governments saw that the deal was in their fiscal interests even if it meant giving up some sovereignty in the domain of health-care to the federal government. Nevertheless, a Republican electorate could vote for one of its U.S. Senators based on the sentiment that poor people should not get “free money.” Behind this is a sort of “survival of the fittest” philosophy wherein the weak should not be propped up. Additionally, prejudice or even animosity towards the drudge of society could be in the mix. From a European standpoint, such a sentiment must seem rather odious, and foreign. In any case, the majority of a state’s voters may at some point vote contrary to their state government’s interests. Being selected by the voters rather than the government, who do you think a U.S. senator is going to pay attention to, other than institutional campaign-contributors, in deciding how to vote on whether to retain Obamacare?

On July 17, 2017, Sen. Mitch McConnell, the Republican majority leader in the U.S. Senate, announced that his second attempt to repeal and replace Obamacare had failed for lack of votes. Back in March, the Kansas legislature had voted to expand Medicaid. Nevertheless, Sen. Moran of that state said in July, “There are serious problems with Obamacare, and my goal remains what it has been for a long time: to repeal and replace it.”[1] In coming out against the proposed replacement, he said it “fails to repeal the Affordable Care Act or address health care’s rising costs.”[2] By omission, we can discern from his statement that he was not opposed to rescinding the expansion of Medicaid even though his own state’s government had approved it.

Because the states as polities are members of the U.S. Senate, I submit that a senator’s discretion should not extend to such a point that it goes against the will of his or her state’s government. Accordingly, a state government should be able to direct the state’s U.S. Senators to take particular positions. A senator’s discretion would come into play when a government is of mixed opinion. For instance, the legislative chambers may disagree, or the legislature and governor may differ on the state’s interest on a proposed piece of federal legislation. State governments could of course legislate which offices (e.g., governor) and legislative chambers would have a voice in directing the senators on particular legislative measures before the U.S. Senate. Without such a tie to a state’s government, a U.S. senator could undercut the state’s representation in the U.S. Senate with impunity. This may in part be why the states have lost so much governmental sovereignty to the federal institutions, thus unbalancing American federalism at the expense of its checks and balances in defense of liberty and justice for all.

For more on the U.S. Senate and the E.U. Council, see the book: Essays on Two Federal Empires

[1] Thomas Kaplan, “Health Care Overhaul Collapses as Two Republican Senators Defect,” The New York Times, July 17, 2017.
[2] Ibid.

Friday, July 14, 2017

Essays on the Financial Crisis

The financial crisis that peaked in the United States during the fall of 2008 is an excellent case study of what can go wrong with leadership and corporate governance in business, financial ethics, government regulation directed both to the firm level and that of the financial system itself, and legal accountability for the culprits. The collection of essays begins with a series of essays on Lehman Brothers, with particular attention on its last CEO, Richard Fuld. Given the fraud surrounding subprime-mortgage bonds at numerous banks, the second part of the book looks at why legal accountability was so elusive in the United States. Weaknesses in the financial regulation, with particular attention to whether agencies had been captured by their respective regulated firms, comprises the third part. The fourth part examines the culpability of the Federal Reserve Bank, which had perhaps been too close to its regulated banks to anticipate the crisis. The book concludes with essays on why business ethics had been so very weak. The careful reader will take from the book a sense that the financial system remained vulnerable even after government attempts to reduce the systemic risks of a big bank going under. 

Essays on Two Federal Empires

This collection of essays suggests that the E.U. and U.S. are both cases of modern federalism at the empire political-level and scale. Distinct attributes and dynamics apply, which do not apply at the state level. Unfortunately, too often today, people treat a state in one union as equivalent to the other union rather than to one if its own states. This category mistake ignores vital differences, and thus is apt to result in sub-optimal public policy and even governmental design. To be sure, each union faces its own risks--dissolution being a threat for the E.U. and consolidation for the U.S. Though correcting for the passage of time, dissolution is/was a risk for both the early E.U. and the early U.S. Such a basis of comparison is optimal. Americans and Europeans can indeed learn from each other, with more perfect unions resulting. 

Monday, July 3, 2017

Bribery at Barclays: Can an Unethical Culture Be Changed?

Amid the financial crisis in 2008, Barclays raised $15 billion from Qatar and other investors. The infusion of capital saved the European bank from needing a government bailout. Unfortunately, the bank may not have disclosed the $390 million paid to the Qatari government for “advisory services” as part of the fund-raising, and the $3 billion loan facility that Barclays made available to that government.[1] The bank, along with three of its executives at the time were charged in 2017 with conspiracy to commit fraud by false representation, and providing unlawful financial assistance—in other words, paying a bribe to avoid needing an E.U. or state-level bailout. According to Amanda Staveley, a European financier, Barclays improperly favored the Qataris in the fund-raising. The relationship between the bank and the Qatari government rings of “mutual back-scratching.” Admittedly, any business deal involves both parties benefiting, and in much of the world bribery is de facto necessary cost of doing business. Nevertheless, Barclays may have had an organizational culture similar to that of Wells Fargo in which anything goes in pursuit of profit.

The full essay is at "Bribery at Barclays."

1. Chad Bray, “Former Barclays Executives Appear in Court Over Qatar Deal,” The New York Times, July 3, 2017.