Occupying Wall Street

At the “Occupy Wall Street” protest in Washington, D.C. in 2011, a man was preaching the Gospel as protesters pleaded with him to stop. While I suspect that the hackneyed secular/progressive vs. right-wing Christian dichotomy is reflected in this dynamic, the protesters may also have been “policing” the contours of their movement as anti-corporate and anti-Wall Street. Yet one of the pleading protesters was holding a sign, “Create Peace,” which does not really get at the anti-business theme. Another of the protesters pleading with the evangelical had a bongo drum handing down from around his neck, which could suggest that he would be out for any left-wing protest. Still another protester, perhaps from the peace movement, held a sign “2 Wars equals = Deficits!” Even morphing into a protest against the horrendous debt of the U.S. Government would miss the mark on the anti-corporate, anti-Wall Street target. 

In the New York protest, an elderly black man held two-part sign: “Obama: One Brilliant American Moving America” and “Upward a Standard of America.” Standing next to him, a young woman was holding a hand-written note, “This Guy Is Clueless” with an arrow underneath pointing to the man. Her expression said, “What is this guy doing at our anti-Wall Street protest?” His expression said, “I’m confident in what I believe and I’m not backing down.” Neither one looked angry.

My question is this: In a free society in which people enjoy the right to protest on public property, how can a given protest movement enforce the limits of its message? If a group secures a permit to protest in a certain area, can that group establish gate-keepers along the parameters to keep out signs that do not reflect the group’s message? I am sympathetic to permitting protests this self-regulatory function. In attending protests in the past, I saw people interlarding their own causes where they were obviously on topics other than that stated of the protests. How selfish of them! I remember thinking. It is as though such people assume that the rules don’t apply to them. They are like those people who show up to a private party uninvited then are offended when they are asked to leave. Essentially, they are arrogant and presumptuous; such an air belies any cause.

The anti-corporation, anti-Wall Street protests are not religious revivals; neither are they pro-Obama rallies. The rallies aren’t even geared to protesting the fiscal mess of the U.S. Government, even though the deficits and debt can be partially explained by the largess pressured by industry lobbies (including banking) and bail-outs occasioned by the greed and fraud extant in the mortgage and investment bank sectors. In short, the protests need not be an opportunity for virtually any progressive cause that wants to promote itself as though it had been invited to interlard its own agenda.

The Wall Street Journal reports that at a “protest off Pennsylvania Avenue in Washington, D.C., it was unclear what the protesters stood for, much less if they’d accept political support from the Democratic Party. A man on stage beat on a drum while reciting free-verse poetry lines such as ‘Revolution is the solution,’ and ‘then we can all sit down and have a lollipop.’ The group at one point participated in Yoga stretches.” In contrast, the populist protests in the Arab Spring were focused and had tangible goals (i.e., the removal of a regime). The American protests can be just as radical with respect to breaking down the system of corporate capitalism, whose oily tentacles have made it around the throats of nearly every government official in Washington, playing those wind pipes like Scots.

By availing themselves to virtually any sort of professional hippie, the American protest movements in the fall of 2011 were relatively wan or pallid—not likely to result in anything other than venting on a variety of left-wing causes. Failure to delimit a movement makes it possible for the point to be the protesters themselves, the various causes all blending into each other like a rainbow of colors. Given the lack of accountability on the Wall Street banks that received TARP by elected officials and the fact that banks helped write the Dodd-Frank financial reform law, even as the banks and Congress refused to obviate the mass-foreclosures, the ambiguity permitted by the protest movement’s organizers was unfortunate; it actually served the interests of the corporations and banks by diffusing and thus dissipating the opposition.

The Occupy Wall Street movement could have potentially turned into a Tea Party of sorts on the left capable of pulling the Democratic Party along similar to the impact that the Tea Party has had on the Republican Party. Sen. Charles Schumer (D. NY) exemplifies the sort of careful Democrat that the Occupy Party could replace. The Wall Street Journal reports that he “enjoys strong backing from financial services firms and wouldn’t comment on the protests on Wall Street.” Bought and paid for, one could reasonably conclude. That senator would not be one to push through structural reforms sufficient to thwart the plutocracy that has taken root in America. For such reforms to be effective, the large corporate form itself (i.e., massive concentration of private capital), which is inherently a threat to a republic, would have to be exculpated and extirpated from the legal and economic landscapes. An economy of small and medium-sized businesses would appeal to Democrats who castigate the towering corporate salaries and bonuses, and to Republicans who value the extent of competition that Adam Smith wrote of, wherein producers are price takers rather than oligarchic makers and therefore not quite so supercilious (and powerful).

Instead of debating the “legal persons” doctrine and whether corporations should be allowed to make campaign contributions, the very existence of the large corporate entity itself can be placed front and center. “Too big to fail” and “systemic risk” could have served as context. The Occupy Wall Street Party could have potentially crystalized around the very existence of the modern corporation and megabank. Playing drums, campaigning for Obama, demonizing the Republican Party, saving souls, protesting war and deficits, and doing yoga won’t cut it. Let’s just say it is in the financial interests of Wall Street and Corporate America, and thus their sycophantic agents in Washington, to keep the Occupying Wall Street movement diffused and chaotic, such that the various protests could have eventually blended in adiaphorously with the cacophony of campaign issues in 2012. Perhaps the plutocracy’s power extended to being able to furtively relegate its opposition by moving it onto peripheral issues, as if a magician making a white dove suddenly disappear—the animal supposing itself still on stage. Perhaps the question is whether corporate capitalism can be eradicated by democratic means. That the protests sport signs advocating revolution may provide us with a baleful glance at the answer. It may be that economic (and political) inequality will continue to expand until the pressure builds to such a point that the sluggish, somnolent masses finally have had enough from the super rich, proffering to the world an American Spring. Although perhaps a harbinger, Occupying Wall Street is in all likelihood yet another garden-variety protest rather than a game changer sporting real change.

Sources:

Jonathan Weisman and Laura Meckler, “Democrats’ Populist Puzzle,” Wall Street Journal, October 7, 2011. 

Mark Landler, “Protests Offer Obama Opportunity to Gain, and Room for Pitfalls,” New York Times, October 7, 2011. 


See related essays: "Protest Movements 101" and "A Self-Regulated Protest?"

Protest Movements 101

David Johnston of Reuters opined on October 7, 2011, the Occupy Wall Street “protests show signs of sparking a major change in U.S. politics by creating common ground among people with wildly divergent views. The key to their significance will be whether they foster a wholesale change in political leadership in 2013 or whether Americans return a vast majority of incumbents in both parties at all levels of government.” But are “wildly divergent views” really represented, and did the movement translate dramatic camera-ready protest parades and sit-ins into grassroots work to get specifically anti-corporate candidates past the primaries and into office in 2012?  I contend that from the get-go, the Occupy Wall Street movement set itself on a trajectory antithetical to being able to answer both of these questions in the affirmative. In so doing, the movement’s “non-leaders” sowed the seeds of the movement’s demise—or at the very least of being relegated as partisan and thus contained as a sub-part in the system.

In terms of a diversity of views, a poster board in McPherson Square, where “Occupy D.C.” pitched camp, listed, according to USA Today, “the group’s wide-ranging goals, including economic justice, education reform, repealing the Patriot Act, District of Columbia home rule and an end of the two-party system.” One protester claimed all these agendas are related because, “Everyone has a voice here.” That doesn’t really explain why the goals are related. I contend that the reason is because the group is populated by liberal Democrats.

While symmetrical with the Tea Party in the Republican Party, my pigeon-holing of the Occupy Wall Street movement deprives it of the anti-big-business populism that is salient in much of the Tea Party. Indeed, traditional agrarian Republicanism contained a strident thread of anti-corporatism, as big business, like big government, is fully capable of trampling over the individual. As Sen. Alan Simpson (R-WY) used to say on the U.S. Senate floor, “I’m for the little guy.” This is vintage Republican populism, which the “Occupy Wall Street” excluded from the get-go by failing to delimit itself in terms of topics. In other words, the “Occupy Party” may be undercutting itself by association.

It is in the corporate interest that the movement be relegated as partisan and left-wing. It is in the political interest (and comfort) of Republican officials to keep the movement from engaging in joint operations with Tea Party organizations or absorbing some Tea Party members; that would essentially muzzle representatives like Eric Cantor who would not want to insult those members.

The movement’s organizers (and there are leaders even if they claim to have a “leaderless” movement) failed to resist the ideological temptation to permit liberal Democrats who are “off topic” with respect to Wall Street and big business generally and with respect to government officials to join in anyway. Even apart from being stigmatized as simply partisan, the group ran the risk of running off course, like a sailboat without a rudder in the water. The boat goes wherever the wind takes it. To get an idea of how even just one protest event can slide, a nebulous “Stop the Machine” protest in Freedom Plaza in Washington, D.C. on October 6, 2011 “was intended to protest the ongoing wars in Iraq and Afghanistan . . . but morphed into a multigroup demonstration that decried corporate greed as well as drone attacks.” Even the best placed intentions can find themselves on the losing end of a “morphing” if the boat had no rudder in the water. So a protest event against the corporate takeover of Congress (i.e., a plutocracy) could easily morph into an anti-war rally where pot-smokers beat bongos and dance in tie-dye shirts, while singing songs from another century that was anything but peace and love. While convenient and fun to the protesters, they would quickly lose credibility in much of the wider American society. Considering how much of that society might subscribe to an anti-Wall Street and big business lobby movement, the ideological convenience came at a steep, though perhaps hidden, cost.

As far as the impact of the Occupy Wall Street movement on the primaries and general election in 2012, the most likely scenario is that turnout of liberal Democrats gets a boost. This marginal impact would be indirect, rather than from a deliberate strategy in the movement to transition protesters into campaign volunteers for anti-corporate candidates urged to run by the movement. Ideally, such candidates could be found and supported for the primaries of both of the major parties. For example, agrarian populist Republicans could readily support a Republican candidate who advocates repealing the “legal person” corporate judicial doctrine (and thus corporate political spending), capping executive compensation on Wall Street, and breaking up the banks as well as companies that are too big to fail (or simply a danger to the republic form of governance).  In short, the notion that there is no ceiling for economic liberty can be replaced by a social-contract notion of solidarity based in the viability of a republic form of government and of market competition. As such, the movement’s goals could easily have been bipartisan, with only the Rockefeller Republicans in opposition.  Alas, so close but so, so far.

Had the Occupy Wall Street movement’s leaders been oriented to getting specifically anti-corporate candidates elected on both sides of the aisle, the movement would have limited itself to a few specific policy proporals. The very existence of the mega-corporation (and the mega-compensation levels) could have been at issue. Indeed, specific proposals capable of fundamentally redefining capitalism from its mega-corporate (with mega-lobbies) variety could have been linked to setting up and supporting particular candidates for a variety of state and federal offices. The movement’s leaders would have had to bend over backwards to make sure that Republican populist (e.g., agrarian) candidates were given just as much support. This would likely have included supporting some Tea Party candidates—the movement’s litmus test being stridently narrow yet uncompromising on providing the corporations with some loop holes or watered-down policies. Most importantly, for the movement to have succeeded in terms of policy would have meant supporting candidates who are not liberal! It could almost be said that such self-discipline alone would merit success at the ballot box. In contrast, taking the road most convenient has meant that making a radical change in corporate capitalism is not likely, at least from the “Occupy Wall Street” crowd.

Consider the following observation from Brendan Burke, a truck driver and punk rock musician who studied philosophy in college. “I have heard a thousand different things people are concerned about — inadequate teacher pay, no jobs, the rich not paying their fair share of taxes and all of it was about how we working people are not getting a fair shake.” The thousand points of light here sound to me like a grab-bag from the left wing of the Democratic Party. A small town Republican who is skeptical of big business (and big government) would naturally take one look at these causes and view the entire enterprise as partisan and left-wing. In other words, Burke’s observation confirms my sense that the movement quickly tracked to the liberal Democrat agenda writ large without even attempting to achieve a sufficient focus either on topic or on grass roots mobilization to significantly change the election results in 2012. At most, liberal Democrats will be more likely to make it to the ballot box on election-day in November, 2012. The usual suspects re-elected who had been sympathetic to the movement will have no fire under their bellies to maintain the movement’s push for fundamental change. Once again, real change will be in terms of incremental regulations rather than systemic change. Perhaps this is simply how American governance gets done.

If I am correct in my prediction, the culprit was none other than ideological selfishness or greed at the expense of driving home one radical change. It is ironic that greed (i.e., the desire for more) compromises efforts to curtail monetary greed. Perhaps the protesters were so upset in part because they knew deep down that they shared something with the bankers on Wall street: being driven by an unwillingness to resist the temptation to have more of whatever is in line with self-interest. I suspect that the corporate (and political) elite depended on this selfishness to derail the protest movement, and the protesters did not disappoint.

Given the immense wealth (and thus power) that the large American corporations and banks have, I am utterly astonished that a window could open even a crack to occasion a societal decision on whether the large corporation—the so-called “legal person”—should continue to exist in the United States. Less astonishing, the window began to close even as the movement was beginning to spread. It was a self-inflicted wound. The movement’s fate, as if predestined, will likely be taken to mean that the modern corporation itself has become virtually untouchable, meaning that it cannot be challenged politically within the system. The mega-corporate form thus ensconced in American society, pressure from the related increasing economic inequality will likely build until the system ultimately bursts open, at a much, much greater cost.

There are indeed huge costs in keeping the party going, whether in Goldman Sachs’ tower or on the street below. I suspect that neither Wall Street nor its antagonists—both of whom have been acting like predictable character-actors— grasp this point; both appear so narrow-minded yet proud. I can’t be wrong, they were undoubtedly thinking as they gazed at each other in 2011 from afar. The bankers refused even to acknowledge any culpability for the financial crisis of 2008 and the protesters were so sure they were on the right side of truth that they provided free admission to virtually any friendly agenda. What if a pro-life protester had shown up?

It would be nice if the great silent majority—those Americans who simply go about their daily business while quietly but astutely observing Wall Street and the protesters from afar—would take the reins from the arrogant and the proud in order to enact systemic change. At least from the vantage-point of a decade into the twentieth century, I suspect that many ordinary Americans like you and me had come to the uncomfortable conclusion that our political-economic system had in all likelihood been wrecked along the rocks of unbridled ambition. At the very least, many of us probably felt that, given the financial crisis of 2008 and the consolidation of special-interest power in Washington, both the financial system and the federal system were in need of major repairs, but had received only fine-tuning at most from vested interests. In other words, most citizens were probably wondering: where are the adults? It is indeed difficult to detect any such creatures among either the childish CEOs, such as Fuld (truly a lunatic), Coyne (a card-playing child), O’Neil (an insecure tyrant), Thain (selfishness incarnate) and Lewis (just plain dumb), or the angry yet somehow playful protesters. Tweedledum and Tweedledee could not put Humpty Dumpty back together again. Unfortunately, there is no Mother Goose either; sorry to say, but I'm afraid we must tackle the hard egg ourselves. Hopefully, we will muster the requisite determination before that egg completely spoils amid the stench of the sordid spoils of corporate capitalism in the stygian halls of Congress.

Sources:



David C. Johnston, “Occupy Wall Street,” Reuters, October 7, 2011. 

Donna L. Leger, “Protesting ‘Occupiers’ Spread Message Beyond Wall St.,” USA Today, October 7, 2011. 




See related essays: "Occupying Wall Street" and "A Self-Regulated Protest?"

Police Aggress Protesters: Sadism or Politics?

The day after several marches and rallies by the “Occupy Wall Street” movement in New York City in 2011, The New York Times reported that “two dozen people were arrested at a Citibank branch on LaGuardia Place on trespassing charges. Some witnesses said that the protesters had tried to leave but were locked inside by bank employees. ‘They were trying to leave, but they wouldn’t let them,’ said Meaghan Linick, 23, of Greenpoint, Brooklyn. She said one woman who had been inside and left was forced back inside by police officers. Citibank, in a statement, said the protesters ‘were very disruptive and refused to leave after being repeatedly asked, causing our staff to call 911.’ The statement continued, ‘The police asked the branch staff to close the branch until the protesters could be removed.’” The Times report does not mention whether the protesters were existing Citibank customers trying to close their accounts. The report does refer to this at a Chase bank. “Earlier, about a dozen protesters entered a Chase branch in Lower Manhattan and withdrew their money from the bank while 300 other people circled the block, some shouting chants and beating on drums. The former Chase customers, who declined to reveal how much they had in their accounts — though a few acknowledged it was not much — said they planned to put their money into smaller banks or credit unions.’ The more resources we give to small institutions, the more they’ll be able to provide conveniences like free A.T.M.’s and streamlined online banking so they can compete with the larger banks,’ said Hannah Appel, 33, a postdoctoral fellow at Columbia University.” The report does not indicate whether the former customers were arrested.
From the report, it does not appear that anyone was arrested for closing a bank account; the protesters at Chase closed their accounts but were not arrested, while the protesters at Citi did not close their accounts but were arrested (for trespassing). Of course, the newspaper’s information could be mistaken. Were any customers arrested simply for closing a bank account, both the bank branch’s manager and the police involved should be terminated from their respective employments and prosecuted. The report does indicate that Citi employees locked protesters inside the bank. This act constitutes false imprisonment, which is illegal. I would think that the subsequent arrests would be thrown out by a judge.

I suspect that psychologically abusive persons are a sizable presence on many police forces. From casual observation, I have been surprised at how quickly and easily a significant number of police employees cross the line simply because they can—meaning that they assume without reservation that they can get away with trespassing the rights of others with impunity. The pattern is no accident.
Beyond orchestrated political uses of police forces (e.g., to teach those kids a lesson), present police recruitment procedures across the United States are inadequate in ferretting out mentally disturbed, abusive personalities. Furthermore, mechanisms to impose accountability on individual employees of police departments are woefully impotent, given the lack of self-restraint or even apparent self-questioning by police employees who are going to do what they are going to do, period. So, besides investigating particular cases of how the political or business elite uses police departments against the rights of protesters, elected officials in towns and cities (at the urging of state- or federal-level officials if necessary) could do more in seeing to it that the citizens are not abused by individual police employees by 1) ordering police chiefs to expand the role of psychological tests and interviews in the recruitment process and 2) instituting an external, independent committee or board with the power to fire police employees for abusing (or threatening to abuse) their authority.

Concerning recruitment, it is important to keep in mind that no one has a right to be on a police force. It is especially the case that bad attitudes need not apply, yet it does appear that they are extant on police forces. The NYPD, for example, has a long history of police brutality and cover-ups, which suggests that the recruitment process is woefully inadequate in screening out psychologically troubled candidates.

        Anthony Bologna of NYPD pepper-spraying protesters following his orders

Concerning accountability, enforcement of the law against police who go beyond their authority at the expense of other people should be strengthened and harsher sentences should be enacted. In some jurisdictions, even the laws by which police can make arrests should be tightened. In New York City, for example, police can arrest people for deemed “safety issues” even if no law had been broken. Outside an event run by the Huffington Post, the police lied to author Naomi Wolf when they stated that the Post’s permit barred protests on the sidewalk. Even though Wolf verified with the event organizer that the police claim was false, the police arrested her after she joined some protesters walking up and down the sidewalk (i.e., not obstructing foot traffic). At the police station, a sergeant told her she was arrested for a “safety issue.” According to the Huffington Post, “The cop didn’t dispute her claim that she wasn’t breaking the law. But she said he explained that whenever police deem it a safety issue, they can make an arrest.” Given the propensity of the police to arrest unlawfully, this loophole should be tightened or replaced with procedures triggered in the event of a disaster (not just safety) that can be independently documented (e.g., an explosion in a subway station).

I suspect that the lack of accountability on police employees who take it on themselves to extend their force beyond the law stems from the fact that enforcement mechanisms are not typically sufficiently independent of the police and local governments. Even “internal affairs” is evidently not sufficient. Police on the beat not sensing any viable external restraint in abusing others is itself indicative of too little accountability on the books as well as in practice. In other words, the attitude itself bespeaks a lapse in the system, which the offending persons undoubtedly know exists and can be counted on as they impose themselves even on people they know to be innocent. A police employee who uses his or her position to intervene in a civil matter, for example, should be fired because it can be assumed that the encroachment was intentional. Also, a police employee who pushes or hits a non-violent citizen without the latter having resisted arrest should be fired. Additionally, the offending officer should be prosecuted. In fact, state legislatures should stiffen the penalties as a deterrent. The penalties for police employees should be stiffer than for other citizens because the right to legitimate force carries with it a special obligation. Breaking a special duty warrants a longer sentence.

Whereas some of the “Occupy Wall Street” protesters referred to “police terrorism,” such hyperbole should be replaced by sadism, the deriving of pleasure by inflicting pain on others. This diagnosis would doubtless apply to Anthony Bologna, who sprayed innocent people with pepper-spray. Beyond politics, the deeper problem is that of sickness. What would happen, je me demande, if the protesters simply chanted, “Sicko! Sicko! Sicko!” or “You’re sick!” at an offending officer as he violently lashes out without provocation?  I suspect that the truth would hurt. Moreover, the protesters could pressure elected officials to stiffen the enforcement mechanisms and sentences.


Sources:

Cara Buckley and Rachel Donadio, “Buoyed by Wall St. Protests, Rallies Sweep the Globe,” The New York Times, October 16, 2011. 

Jason Cherkis, “Author Naomi Wolf Speaks Out About Her Arrest at Occupy Wall Street,” Huffington Post, October 19, 2011. 

Related essays: "When Police Are the Criminals" and "Christian Protests in Egypt" and "Protest Movements 101"

The Franchise: An Inherently Flawed Arrangement

The franchise arrangement combines the reach (and efficiency) of central advertising with the ability to respond to local differences. I suspect that the benefit from local flexibility is typically overdrawn, such that the value of the franchise arrangement itself is overstated. Meanwhile, the downside in local autonomy is, I suspect, understated. That downside includes the propensity to engage unethically based in part on lack of character-virtues and on the accurate perception of weak accountability within the franchise arrangement. The downside also comes into greater play than perhaps is realized because management on the local level can be rather bad in quality (from a managerial standpoint). In other words, slim pickings with regard to managerial talent can be a factor at the local level. Without mechanisms of accountability from “higher up,” front-line managers can get away with an astonishing amount of bad (and unethical) managing.

For example, I stopped into a Papa John’s franchise on a weekday mid-afternoon in 2011 to buy a slice of pizza. The employee told me that during mid-afternoons, he offers two for one slice at the regular price. So I bought two-for-one. The slices were terrible—the cheese almost non-existent. The next day, I happened to be passing the same establishment and thought I would see if the pizza was any better. I told the same employee that I wanted the same two-for-one. “I’m not doing that today,” he replied. “The pizza is fresher.” So apparently the two-for-one at the regular price was a matter of employee discretion, rather than being something a customer could count on. I was astonished because his manager was standing next to him. As I was saying that I would pass on ordering anything, the manager suggested I order cheese-sticks instead. I just looked at him. He was utterly indifferent as to whether his employee had misled me; that manager was in a position of authority sans accountability or responsibility. I suspect that this is a common pattern in franchise businesses because the franchise agreement is too weak to hold franchisees accountable.

I have experienced local managers of Best Western, Motel 6, and Days Inns motels going back on their word, only for the corporations’ respective “customer service” employees to tell me that the managers at franchise properties can do whatever they want. In one such case, I later learned that the local police department had had so many complaints from customers about the local Days Inn manager that the chief had called the corporation only to be told that the buck stops with the local manager! The Days Inn corporation could do nothing about the franchisee's manager. 
At the very least, a conflict of interest is exploited in turning over a complaint against a manager to the manager himself, yet the franchise arrangement is not strong enough to obviate the conflict of interest. Accountability regarding unethical local managers simply does not exist in cases in which the franchisee owner simply looks the other way. I suspect that the squalid managers even know when they can get away with cheating customers for short-term financial gain. Meanwhile, the customers have little recourse, even if they call the corporation's "customer service" number.

We can perhaps generalize further to say that the managerial skill (and ethical conduct) at the local-franchise level is typically insufficient, given the looseness in the franchise-arrangement’s mechanism of accountability on the local managers and employees (and even franchise owners). That is to say, the franchise arrangement itself is flawed because it does not permit mechanisms that are sufficient to correct bad and unethical local managers—or at the very least to give those winners the sense that there could be such accountability exerted on them. 

In fact, the franchise arrangement is flawed even apart from local managerial ethical decadence and sheer incompetence. For example, particular Subway franchises do not honor the specials advertised by Subway. In fact, next to the Papa John’s franchise location that I walked away from in 2011, a Subway franchise was selling subs, only without the month’s specials, which were being advertised on television. Here, the problem is not managerial ineptitude or unethical conduct; rather, the fault lies in the franchise agreement itself, wherein individual franchisees can opt-out of particular advertised-specials. This loophole enables the possibility wherein a customer drives to a subway expecting to be able to purchase a special only to 1) be informed that there is no special there and 2) go home empty-handed. A potential customer in that situation would not be wrong in feeling misled even if it is not technically false-advertising (given the ads’ fine print). Franchisees should be required to honor and fulfill anything promised in the corporation’s advertisements. Otherwise, the arrangement itself is inherently unfair to customers, and thus inherently faulty. Again, the structure of the arrangement is found wanting and should be tightened, both for reasons of effectiveness and ethics. 

The weakness inherent in the franchise arrangement can be grasped by situating it along a spectrum running from a confederal alliance to (modern) federal government. I contend that the franchise arrangement is too close to the confederal arrangement in the case of managerial and employee accountability. Whereas the polity members of a confederation hold all of the sovereignty in the confederal system, both the members and the government at the federal level are semi-sovereign in modern federalism. Also, whereas the confederal level can only reach its member polities, a federal government can reach the individuals inside the member polities. A federal government thus has more authority to hold citizens accountable even within their respective states (state governments do too). Where a state government looks the other way on racial violence, the FBI can step in and arrest the KKK individuals. In a confederation, this would not be possible; the state government alone reaches the citizens, and the authority at the confederal level is typically very limited and subject to support from all or a supermajority of the polities in the confederation. 

The franchise arrangement evinces “dual-sovereignty” by analogy because the contract gives the franchisees autonomy to run their businesses as they see fit while subjecting them to specific requirements (e.g., products, signage, furnishings) that represent the “unity.” However, even though it is technically “modern federalism,” the arrangement resembles a confederation as regards managerial and employee accountability. That is, the requirements do not typically include managerial standards and accountability mechanisms; these are left to the “state governments,” the franchisees themselves.  As long as they adhere to the specific requirements, such as in what must be shown in the stores, franchisee owners are largely autonomous in terms of how they have their businesses managed internally, or “domestically.” If there is a violation of one of the specific requirements in the franchise agreement, the corporation treats the franchisee business as a unit and holds the franchisee-owner to account. In this sense, the arrangement functions like a confederation. I submit that local management (and staffing) is typically not sufficiently capable (and forthright) to justify this. 
Therefore, to remedy the problem, an additional transfer of “sovereignty” to the corporation should be made such that a “check” or accountability mechanism can exist at the corporate level and reach directly to the franchisee’s managers and employees, even without respect to the franchisee-owner. By analogy, the FBI can arrest individuals at a KKK rally without checking with the governor of the particular state. Otherwise, inept or unethical franchisee owners will be able to cover for their hires. Indeed, “bad” employees may simply be doing an owner’s dirty work.

In conclusion, effective and ethical management does not extend as far locally as we, the general public, tend to assume (particularly in the food and hotel/motel industries). Corporations utilizing the franchise legal arrangement should strengthen their ability, in the legal documents, to hold local managers (and their employees) accountable. Customers would appreciate an employee in customer service actually going to bat for us, rather than giving us the quotidian “apology” only to say they can’t actually do anything about the problem because the buck stops with the local managers on X. We should not have to accept bad or dishonest business practitioners simply because they are numerous and the franchise arrangement itself is inadequate. Furthermore, just because certain customers can indeed be quite rude does not mean that holding managers and employees accountable for going back on their word is somehow excessive because serving the public is difficult. I suspect that American consumers in particular put up with much more crap at the retail level than necessary. In other words, the business of America could be done a lot better, yet for some reason we tend to assume that the status quo is unavoidable. We may even have convinced ourselves that efficiency justifies “a few bad apples.” Business itself would benefit were accountability mechanisms strengthened, and you and I would not suffer so many fools holding leverage over us on account of their positions. We need not be utterly frustrated with a dishonest, “my way or the highway” rigid and self-centered manager or employee. Life is too. So we do not have to accept the franchise arrangement in our business system and society simply because franchising is convenient to corporations. I contend that the arrangement only seems to be in their financial and strategic interests. The corporate executives are overstating the quality and honesty of their franchisee-owners and their hires. Sadly, uprooting even a putrid tree can be an exercise in futility if the sordid roots are deep and entrenched with vested interests. 

Paul Volcker on the Market and Regulation

Paul Volcker, former Chairman of the Federal Reserve, may strike the conventional "wisdom" as an oxymoron regarding the market mechanism and government regulation. I contend that he could  have taught that "wisdom" a lesson or two.

Regarding systemic risk, Volcker has called the perils of institutions that are too large or interconnected to be allowed to fail the greatest structural challenge facing the financial system. In 2011, he said we must shrink the risks these companies pose, “whether by reducing their size, curtailing their interconnections or limiting their activities.” This goes beyond what The New York Times refers to as his “addressing capital requirements (make them tough and enforceable), derivatives (make them more standardized and transparent) and auditors (ensure that they are truly independent by rotating them periodically).” To reduce a large corporation’s size, interconnections, and/or business activities is essentially to say that a company that is too big to fail should not be permitted to continue to exist unless it is downsized. It is not enough, in this view, to increase the capital requirements of a large, $1 trillion plus bank that is too big to fail; the bank itself must shrink. Even though market pressure could lead a bank such as Bank of America to downsize, the market mechanism is not enough; government, according to Volker, should have stepped in after the financial crisis of '08 to make sure the downsizing was adequate even if the market and the banks' CEOs were just fine with the status quo. Essentially, the message at the time was that the market mechanism itself is insufficient to obviate systemic risk. At the same time, Volcker wanted to bolster that mechanism by riding of it of the effects of large players that are guaranteed by government even as they are not controlled by it. 

Regarding Fannie and Freddie, Volcker, who was once a presidential appointee to Fannie’s board said, “A public agency intervening in the mortgage market in a limited way doesn’t bother me. But if you want to subsidize the mortgage market, do it more directly than hiding it in a quasi-private institution.” The very nature of a “quasi-private institution” was abhorrent to him because the profit motive does not go well with being protected on the downside by a government. “You ought to be either public or private; don’t mix up private profit-making opportunities with an institution that is going to be protected by the government but not controlled by it.” Such a mix can be expected to result in distorted incentives, such as unduly risky behavior. Furthermore, the mix enables government officials to hide the government’s potential liability from the guarantee. Referring presumably to Treasury officials, Volcker said, “They didn’t want the mortgage to be a government expenditure. It was a volatile thing to put on the budget. They made the wrong choice.” The choice can be explained by the fact that it followed the path of most convenience, or least resistance, from the standpoint of democratic accountability. Therefore, from both the standpoint of economics and political theory, the private sphere should be clearly distinguished from the public sphere as regards institutions. Volcker was not saying, however, that government ought to stay out of the housing market—only that such involvement should not be mixed with the profit motive.

To be sure, Fannie and Freddie had powerful defenders on Capitol Hill and at the White House in 2011. Extracting the two mortgage guarantors from the housing market would have been an up-hill battle. Concentrated private power of American banks can make use of the U.S. Government's many access-points, moreover, in order to stave off unwanted proposed change. This is also true regarding proposals to regulate mutual funds. “Because they are not subject to reserve requirements and capital requirements,” Volcker observed, “they are a point of vulnerability in the system.” Yet in a letter to the Financial Stability Board, an international organization charged with developing strong regulatory and supervisory policies for financial institutions, the Investment Company Institute said, “We do not believe banklike regulation is appropriate, necessary or workable for funds registered under the Investment Company Act of 1940.” Strangely, Americans have tended to take the rather-obvious positions of such vested interests at face value and accord them validity. Well ok, the conventional wisdom probably concluded, then I guess we shouldn’t regulate mutual funds then. The conflict of interest in the mutual fund industry’s own position regarding regulation ought to have had an immediate effect in relegating the banks' position in the public debate as well as in Congressional offices.

Interestingly, Volcker simultaneously disavowed relying exclusively on the market mechanism (e.g., regulating to minimize systemic risk) and advocated keeping any government involvement in the market from mixing with the profit motive. In other words, he opposed distortions on that motive even as he was not laissez-faire. Because he was fine with a role for the government in the housing market as long as the public sector involvement would not work through an institution’s profit motive, I view him as being closer to the "government regulation" position than the "free market" position. Even so, he should not be pigeon-holed as “free market” or as “big government” because he did not line up with the "purists" on either side. Even as he was for financial regulation, such as the Volcker Rule, he wanted to stress the importance of an "arm’s length distance" between business and government in a market, even that of banking. Theoretically, government can act in its unique way to protect the market itself (i.e., minimize systemic risk by breaking up firms too big to fail and regulating shadow banking) even as the profit motive is protected from government-backed distortion. The rest of us can take a lesson from Volcker’s wisdom. Accordingly, we might want to avoid easy slogans being bandied about on either “side” of the ideological aisle, such as "socialism," "deregulation," and the "free market."

Source:

Gretchen Morgenson, “How Mr. Volcker Would Fix It,” The New York Times, October 22, 2011.