Rule of Law in the E.U.: Implications for the Federal System

For a federal system to be viable over the long term, a core of basic values must be shared even though one of the main functions of federalism as a system of government is the ability to accommodate diversity from state to state. In the case of the E.U. and the U.S., the rule of law, democracy, and separation of powers as concerns the independence of judiciaries at the state and federal levels are non-negotiable; hence as these are compromised or thwarted outright, the viability of E Pluribus Unum can be expected to unravel. As 2017 came to an end, the E.U. found itself largely impotent as some of the eastern states violated the basic principles of rule of law and an independent judiciary with impunity. If the impunity was indeed real, the federal system itself was in desperate need of repair.

The expansion of the U.S. westward during the nineteenth century brought the rule of law to the “wild west.” Similarly, the expansion of the E.U. eastward in the early decades of the twenty-first century was meant in part to instill  the rule of law after decades of corruption under communism.  Yet in the state of Poland late in 2017, the state government fired more than a third of the judges on the state’s highest court. That government even ignored the ruling of the state’s constitutional tribunal, “prompting the European Commission to trigger a sanctions procedure that could strip Poland of its voting rights in the union.”[1] Making the weakness of the E.U.’s lopsided (i.e., state dominated) federal system transparent, the governor of the state of Hungary declared he would veto any such stripping. The conflict of interest is obvious, given Viktor Orban’s “increasing authoritarianism” in Hungary.[2] In particular, his Fidesz party had forced judges into early retirement and exerted control over the media, central bank, and data protection in the state after winning a supermajority in the state legislature in 2010. That the federal procedure for punishing the state government of Poland could be subject to a veto from another wayward state government points to weakness at the federal level. Specifically, not enough governmental sovereignty had been shifted from the states to the Union.

The compromised independence of state judiciaries cut into the core values of separation of power and of law, which are essential in any viable republic (i.e., representative democracy); for a democratic majority can oppress minorities and individuals and thus deprive them of essential liberties that in turn underpin a democracy. Although the state of Bulgaria, which began its six-month E.U. “presidency” in January, 2018, had made some progress against corruption, that state and Romania were said by the Commission to have not made enough progress to end a decade of special monitoring. To be sure, Malta too had issues with the rule of law. The same could be said of the Sicily region of the state of Italy, where the mafia was still vibrant, so the western states were not immune. Even so, an E.U. official said that people in the west felt betrayed by their fellow citizens in the east.

A house divided cannot long stand, it is said, yet institutions have an incredible amount of undeserved inertia. Even so, the gravity of the problem facing the E.U., which I contend is enough to warrant an additional shift of governmental sovereignty to the federal level with respect especially to the ability of the “feds” to come down on wayward states, is evident from E.U. Vice President Frans Timmermans’ statement that undermining the rule of law “is putting at jeopardy the very core of what holds us together.”[3] Perhaps the E.U. should have held off the accessions of the formerly Communist states or taken a greater role in ongoing monitoring in them, but the fundamental values of a political culture are slow and even resistant to change. The federal level of the E.U. needed more power with which to stave off inertia or back-sliding in the problematic eastern states. A federal FBI and adequate federal laws to go after individual wrongdoers in the state governments could have made a dent in the problem, in that E.U. citizens living in the east could have seen that participating in corruption does not pay even if it still does locally. The ECJ could have been empowered to take on a larger role with respect to the state governments and even their respective individual officeholders. Criminal law is not among my areas of expertise, however, whereas I can state decisively that the inability of a federal level to enforce basic principles against opposition in a few states points to a serious weakness in the federal system itself with respect to the relation of the federal and state levels in terms of authority. A viable federal system enables both the federal and state levels to act as checks against the other, and this requires something approaching a balance of power between the two levels. In the case of the E.U., as in the early U.S., the problem has been the insufficiency of power at the federal level.  

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[1] Valentina Pop and Daniel Michaels, “EU Confronts Deep Divisions Over Legal Standards,”The Wall Street Journal, January 19, 2018.

[2] Ibid.

[3] Ibid.

BP and MMS: A Case of Regulatory Capture

In the U.S. Constitutional Convention, James Madison in particular stressed the nepharious quality of faction in relation to the public good. He argued that if a republic is extended in scope sufficently that there are more factions, none of them would be able to dominate and the public good would emerge. In a republic in which there are only a few major parties, the people's perspectives can become delimited by the parties' paradigms in an either-or dual macro-framework. That is to say, societal blind-spots can exist. To the extent that both BP and the relevant U.S. Government regulatory agency, MMS, were both culpable in the Deep Water Horizon rig explosion in 2010, both the Republican defense of business and the Democratic defense of government fall short. Even so, these respective defenses went on undaunted in the wake of the disaster and in the next year. To be sure, old paradigms die hard.

Albeit an oversimplification, it can be said that the Democratic party in the United States stresses the power of business as the problem, whereas the Republican party there views the problem as being government.  In campaigning for President in 1980, Ronald Reagan bluntly said that government was indeed the problem.  Deregulation ensued and industry self-regulation was like a fad. The idea was that the checks and balances in goverment that protect the liberties of the citizens could be applied at the industry level such firms would provide a check on eachother automatically. Lost in the buzz was the extent to which an industry would be willing to sacrifice its own long-term viability in order to protect even the bad among its own.

In 2010, the Republican paradigm whereas business is good and government is bad resulted in some Republican office holders defending a piriah (BP) and continuing to urge deregulation in order to excoreate against the US Government and frustrate the Obama Administration.  The ranking Republican on the US House Energy and Commerce committee apologized to BP’s CEO for the “shakedown” by Obama in extracting a $20 billion fund for the claims in the Gulf region. Meanwhile, Democrats were hard-pressed to admit that a goverment regulatory agency, namely MMS, could be so inept and corrupt.  It was not so much a matter of more regulations being needed; rather, the problem was government regulation itself.

Democrats could point to the encroaching nature of big business over the regulators, but absent a shakedown in the size of the biggest companies, the wherewithal of the regulators not to “partner up” with the regulatees may be an intractable problem in government regulation.  The traditional argument in capture theory that regulators depend on their respective industries for information doesn’t even break a sweat in what is needed to explain the extent of the power of big business over government regulatory agencies.  The imbalance of power is systemic: government officials being too feckless and corrupt. and big business being too powerful for the good of the republic.  In their letters, Jefferson and Adams agree on the need for a natural aristocracy of virtue and talent, rather than the artifical sort of wealth and birth.  Absent a natural aristocracy, systems whether business or government, cannot but be ineffective and corrupt.

In 2010, BP’s sordid safety record and its explosion in the Gulf of Mexico challenged the paradigms of both parties.  In actuality, business and goverment, as well as business and government, contain problems that exceed and transcend a particular paradigm. In treating the two party paradigms as a dichotomy, we miss the interaction effect that exists among the respective sectors’ problems.  It might be that the founders were correct in their suspicion of factionalism, as it does indeed detract from the common good.  Where a paradigm keeps one from acknowledging problems that are in the radar of an “opposing” paradigm, a person is not apt to serve the public interest.  In other words, both paradigms are limited.  The BP-MMS interaction and the subsequent explosion and responses exposed the delimited nature of the partisan paradigms.

For more on MMS, see Cases of Unethical Business, which is available in print and as an ebook at Amazon.

On U.S.Senators Being Elected

According to David Firestone of The New York Times, a “surprising number” of the Tea Party members were calling for the repeal of the 17th Amendment of the US Constitution during the election campaign season of 2010. That amendment, which was ratified in 1913, provides for direct election by the people of each state of US senators. According to Firestone, “allowing Americans to choose their own senators seems so obvious that it is hard to remember that the nation’s founders didn’t really trust voters with the job. The people were given the right to elect House members. But senators were supposed to be a check on popular rowdiness and factionalism. They were appointed by state legislatures.” That it may seem so obvious to us does not mean that we have it right. Yet Firestone presumes so in writing, “a  modern appreciation of democracy — not to mention a clear-eyed appraisal of today’s dysfunctional state legislatures — should make the idea unthinkable.” Should it really?  Firestone seems biased in his dogmatism.

For one thing, the delegates to the Constitutional Convention in 1786 didn’t want to restrict direct representative democracy in the US Government to the US House only out of fear of mob rule as Firestone suggests.  They thought the direct power of the state governments in the US Government would be necessary to keep the new empire from consolidating at the imperial level (i.e., in the US Government). Firestone himself admits that to most authors of the Constitution, “allowing states to appoint the Senate was the linchpin of the entire federalist system and the real reason there are two houses of Congress.” Whereas the British House of Lords represents wealth, the US Senate was to represent not only that, but semi-sovereign republics as well.  The latter likens the US Senate to the European Council rather than to the upper chamber of one of the EU’s states.  Firestone makes a category mistake where he avers that it “may be true that appointed senators, accountable only to state legislators, would never approve of many useful federal mandates designed to put the national interest above local parochialism — including everything from the minimum wage to the new health care reform law.” States commensurate with European kingdoms/countries are not local polities.  Furthermore, reducing the US Government to a “national” interest ignores the semi-sovereign nature of the states (and thus the international principles in the design of the US Senate as opposed to the US House, which is national in nature).

Firestone seems to misunderstand what the US Senate is.  In referring to returning to having the state legislatures appoint their delegates to the US Senate as an “elitist notion,” Firestone forgets that state legislators are elected by the people and in fact have smaller electorates than do US House or Senate members.  Empowering state legislators would ironically be to bring power back closer to the people.  ”Senate candidates have to raise so much money to run that they become beholden to special interests,” Tea Party members say according to Firestone.  The members ”argue that state legislators would not be as compromised and would choose senators who truly put their state’s needs first.” That in turn would restore checks and balance to federalism, wherein both the state and federal governments would be checked (by the other). This is not just a matter of state rights; rather, it is a matter of a viable federalism instead of consolidation. As Tim Bridgewater, who ousted Sen. Robert Bennett of Utah as the Republican candidate writes, “We traded senators who represent rights of states for senators who represent the rights of special interest groups.” By rights of the states, one can infer an empowerment of the representatives elected by the people of the states.  Such a change would hardly be anti-democratic or elitist; rather, it would reduce the power of the elitism in Washington DC.  A writer ought to be careful in dogmatically writing that something is ridiculous or unthinkable, for the lack of thought could come back to haunt him or her.  It is clear that Firestone is not very open to the possibility that he could be wrong.  The arrogance of centralized power at an empire-level is truly remarkable, even in its press.

Source: http://www.nytimes.com/2010/06/01/opinion/01tue4.html?hp

See American and European Federalism  and Essays on Two Federal Empires, both available at Amazon.

The BP Oil-Rig Explosion: Did the U.S. Government Over-Reach?

A month into the BP oil spill in the Gulf of Mexico, some commentators began to wonder out loud whether the US Government ought to take over for BP in stemming the leak. As frustrated as those commentators were at BP–after all, the oil company had shirked safety procedures and lied about having the technology to manage such a spill–they had to admit that the US Government did not have the technical expertise to divert or shut off the oil.  For better or worse, we had to rely on BP in capping the leaks.

Having to rely on the culprit to solve the problem and clean up the mess sounds a bit like how the financial crisis of 2008 was managed.  In other words, we have managed to become dependent on firms such as Goldman Sachs and BP even where they are the culprits.  To be sure, government is an authority or umpire in society, not a producer.  To treat government as a business evinces a category mistake of sorts. Were it to operate as a producer, there would be a conflict of interest in its governmental capacity because it would be inclined to favor itself even as its umpire function requires having an even hand. It is also a cateogory mistake to treat a business as having a governmental capacity.  Hence, we don’t want the banking or oil lobby running Congress.

Rather than become an oil company, the executive branch of the US Government ought to concentrate on better organizing itself in its umpire capacity. In particular, the Department of Homeland Security (i.e., the Coast Guard), the Energy Dept, and the Interior Department each had a ball in play as the oil spill unfolded. Hence the umpire could not speak with one voice, as the US President must rely on someone to handle the day to day umpiring.  We couldn’t very well have the President living on the Lousiana coast as the oil leaked.  Having too many cooks in the kitchen makes for confusion. The relevance of the Interior Department alone is debatable, as the spill did not take place in the interior. Even so, the administrators were falling over each other in positioning themselves. Advocating that the government take over from BP would only multiply the harmful effects from the confusion that is immanent in the branch’s structure.  I would even contend, moreover, that the US President should concentrate on governmental domains in which the several states cannot act (even if some won’t!), rather than wading into every problem.

In short, the US Government can’t do it all, hence it shouldn’t try. Where it is the only umpire in town, such as out in the Gulf, it should concentrate on being a good umpire. This includes not only simplifying its own organization (in the exec branch), but also keeping itself from being unduly influenced by business so it can be an effective umpire.  Allowing Wall Street to have influence over the writing of financial regulation (or oil companies in MMS) not only compromises the government’s umpire function, it also permits sordid companies to exist, and thus to potentially be relied upon in stopping the leaks whether in the financial world or in the Gulf.  The US Government ought to concentrate its power so it can be a viable umpire, rather than allowing itself to become a confused sieve.

Hierarchy Hampered Down in American Business

Without going into either the labor or management camp, a person can viably critique the operation of hierarchy itself in business organizations. The notion is typically associated with the concentration of power at “the top,” rather than the relation of middle-level managers to “retail” managers and their subordinates. Efficiency of power at a corporate headquarters does not necessarily translate into “downward” efficiency at the level of middle management. I submit that precisely this efficiency is rather severely compromised in American business.

“The word hierarchy derives from ancient Gree (hierarchia, literally the ‘rule of a high priest’) and was first used to describe the heavenly orders of angels and, more generally, to characterize a stratified order of spiritual or temporal governance.”[1] The early focus on the situs of a high priest rather than all priests, and the heavenly orders rather than the relation between them and the earthly orders set the tone: the top matters most in a hierarchy. I am guilty in that my theory of organizational leadership applies exclusively at the top: the leadership of an organization. Supervisory management is in my view another animal. Yet it too is important, and I contend that it is woefully neglected in American business.

Customers, for example, of retail businesses will recognize the frustration in dealing with not only  a rude or stubborn employee—even acting at odds with a company policy!—but also that employee’s gatekeeping, or outright refusal to get a supervisor as requested. The sense of entitlement that a non-supervisory employee may have rivals the sense of importance of a CEO. Getting to a store manager can nonetheless require a lot of effort and patience; typically an assistant manager is sent to put out the little brush fires. Employees may know how to exploit this gap that exists between what the employees and a store manager are doing, such as by insisting that aggrieved customers first inform the indolent employee of what will be said to the manager (a conflict of interest to be sure!).

In short, retail-level managers tend not to be involved enough where customer-meets-employees; management by walking around is too easily sidelined by the endless list of things needing to be done behind a desk. Put another way, I contend that retail management is generally interpreted as being akin to upper management, rather than something unique. The situs one or even two levels above non-supervisory employees on the front line should be actively involved on that line, and the complaint access can be greatly improved such that customers do not have to depend on problematic employees for it and spend much time and effort in reaching accountability. Hierarchy is made for efficient accountability, whereas networks (e.g., organic organizational structures and flat inter-organizational relationships) may be overrated.[2] Yet the “lower” half of a company’s hierarchy is, I submit, underutilized and perhaps even unwittingly compromised in part due to the common association of hierarchy with “the top.”

Starbucks, for example, has a centralized customer service number, which can be used to register a complaint against a store employee. The offended customer may get a gift card for a few free drinks to compensate—and such compensation, rather than an apology alone, is important—but what about the distance from the centralized unit at headquarters and the store-level employee? The unit sends a communication to a regional or district manager, who in turn is supposed to communicate with the store manager, who in turn is supposed to have a talk with the employee. Considering the sheer number of links, and the distance involved, the intended message could be compromised both intentionally and unintentionally. A district manager, for instance, may just do enough to make it seem that a real correction has been made. A store manager might dismiss the charge, as it reflects badly on the store’s management. Rarely, perhaps, would a store manager tell a shift manager to listen to what the employee is saying to customers. I also doubt whether the typical complaint results in any actual and substantive negative consequences for the employee, especially if attitude is the culprit (which is not likely re-trainable).

For all that Howard Schultz’s CEOship of Starbucks has been lauded, I have been surprised at the number of times I have witnessed rude, close-minded behavior of employees at the store level. This is not to say that good employees have not worked in the stores. My point is rather that in the company’s hierarchy, the part between the district managers and the store employees seems weakest. In my booklet Bucking Starbucks’ Star, I argue that Schultz’s corporate social responsibility ventures “at the top” do not make up for managerial and employee deficiencies further “below.” I have never seen a store or even a shift manager “working the room” in stores to see how the customers were actually served, and such managers can confront centralized reports of complaints by rationalizing, the customer got free drinks, so there’s no need for me to take action against the employee. Management as walking around, even by district managers scheduling time to work along side the crews at the various stores, and in having direct access to complaining customers, could make a dent in shoring up hierarchy in business organizations where patching is most needed. Hierarchy can be a good thing, provided it is thought through in its various, distinct levels.

See: Cases of Unethical Business, Walmart: Bad Management as Unethical, and Bucking Starbucks' Star.

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[1] Niall Ferguson, “In Praise of Hierarchy,” The Wall Street Journal, January 5-6, 2018.

[2] Ibid.