On the United Technologies-Raytheon Merger: The Macro Level of Analysis

In analyzing a merger, incorporating the macro context is vital. For very large mergers, for instance, public policy concerns inevitably surface even if they are typically ignored not only in merger analyses, but also by in societal and even governmental public discourse. Analysis at this level takes a societal standpoint, including on the relationship of business and government. This does not diminish the salience of firm-level analysis, for even how the respective organizational cultures would mesh is very important to a functional merged company. This is even true regarding the respective business-ethics climates, for it is not a given that a healthy organizational culture dominates an unethical one.

In June, 2019, United Technologies “doubled down on the aerospace market with an all-stock deal to merge with defense contractor Raytheon Co., after UTC executives early chose to exit from the escalator and air-conditioning businesses.”[1] The anticipated combined company, “valued at more than $100 billion after planned spinoffs, would be the world’s second-largest aerospace-and-defense company by sales behind Boeing.”[2] The annual revenue for 2019 would be $74 billion. UTC’s CEO at the time estimated a billion dollars in cost-savings. Additionally, spending on research could be increased.

On the macro scale, the merger would intensify the consolidation in the aerospace and defense industry. Better terms from supplies and the Pentagon had been putting pressure on contractors “to cut costs and invest more of their own money in new technologies, such as space systems and cyber security.”[3] Consolidation has a major drawback, however, in that competition and thus trade can be stifled. Society, through its government, rather than consolidated industries must resolve anti-trust problems, and this is difficult when those industries have significant power over legislative bodies and regulatory agencies. Hence, for example, anti-trust law had not been applied to the five largest American banks even after their complicity in the financial crisis of 2008. In fact, the bankers were able to use government funds to pay themselves bonuses!  So the question can legitimately be raised whether anti-trust law even can be enforced when the consolidated company or industry is not in favor.

If very large consolidated companies can rebuff regulatory attempts to constrain or limit those companies, then even very unethical managements can enjoy perches of power that are worrisome from a societal standpoint. In the late 1990’s, for example, Hughes Aircraft merged with Raytheon Missile Systems. In 2002, dioxane, a carcinogenic chemical that Hughes Aircraft/Raytheon had been using as a solvent, was discovered in the ground water under South Tucson, Arizona. Previously, Hughes had used cancer-causing trichloroethylene since 1981, and several local residents had won settlements on that chemical from Hughes.[4] Perhaps Raytheon’s management fail to use adequate oversight over Hughes, especially given that company’s track record, or was the purchasing company tacitly involved. Something to ponder for a company on the cusp of growing substantially through another merger in 2019, for an environmentally callous group to be so big would indeed be a big deal.

At the company level, a board of directors subservient to management or even a sordid corporate culture, such as that of Enron, can be enough to thwart efforts to clean up from unethical conduct. Wells Fargo, for instance, faced an entrenched corporate culture in “efforts” to stop charging customers for unordered products. Plutocracy, or the rule of wealth, at a governmental level means that such companies can not only continue acting unethically but also extract monopoly or oligarchic rents. In the case of the defense industry, the increasing power of the major contractors can even result in pressure on lawmakers to go to war when diplomacy would have been a better route. Indeed, a government’s spending can become loop-sided in favor of defense because the major contractors are powerful enough to demand it because it is good business. Hence U.S. President Lyndon Johnson kept the Vietnam conflict going in large part because he was getting kick-backs from certain contractors. In short, from being able to evade anti-trust enforcement to being able to pressure or pay off presidents in favor of military engagements, consolidated defense contractors can be said to have too much power. 

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[1] Cara Lombardo and Doug Cameron, “Merger to Create Aerospace Giant,” The New York Times, June 10, 2019.

[2] Ibid.

[3] Ibid.

[4] Tony Davis, “South-side Tucsonans Mobilize for Another Water-Pollution Struggle,” Arizona Daily Star, April 16, 2017.

Social Harmony and Toxic Chemicals in China

According to the New York Times in 2012, the Chinese had become increasingly willing “to take to the streets despite the perils of openly challenging the country’s authoritarian government.” Even more surprising, government officials had actually acquiesced in some notable cases. Given the raw nature of power, particularly under authoritarian auspices, revolution rather than gradual reform may still be the most likely means by which democracy can bloom under the golden, albeit hazy, sun.
In October 2012, local officials in the coastal city of Ningbo promised “to halt the expansion of a petrochemical plant after thousands of demonstrators [had] clashed with the police during three days of protests that spotlighted the public’s mounting discontent with industrial pollution. . . . The project, an $8.8 billion expansion of a refinery owned by the state-run behemoth Sinopec, was eagerly backed by the local government, which [had] been promoting a vast industrial zone outside Ningbo, a city of 3.4 million people in Zhejiang Province. Residents were particularly unnerved by one major component of the project: the production of paraxylene, a toxic petrochemical known as PX that is a crucial ingredient in the manufacture of polyester, paints and plastic bottles. Many residents [contended] that the concentration of polluting factories in the Ningbo Chemical Industrial Zone [had] led to a surge in cancer and other illnesses.” Lest it be assumed the officials had suddenly “got religion” as far as democracy is concerned, the New York Times provides a more realistic explanation:

“Although local officials were undoubtedly alarmed by the size and ferocity of the protests, their decision to bend so quickly was also probably influenced by the coming series of meetings that will determine China’s next generation of leaders. The ruling Communist Party, always eager to keep a lid on public discontent, is especially nervous about any disruptions that might mar the 18th Party Congress.”

Culturally, the Chinese officials—like the Chinese people generally—undoubtedly felt the need to protect or restore social harmony. At close range, loud protests ring out like a frontal assault on such harmony. The protests began “when farmers blocked a road near the refinery, grew over the weekend as thousands of students and middle-class residents converged on a downtown square carrying handmade banners and wearing surgical masks painted with skull and bones. . . . (T)he demonstrations turned violent when riot police fired tear gas and began to beat and drag away protesters. At one point, according to people who were there, marchers tossed bricks and bottles at the police. At least 100 people were detained, according to some estimates, although most were later released.” Accordingly, the immediate instinct of the officials would have been to do whatever would be most likely to stop the disruption as soon as possible.
In the long term, however, social harmony requires some degree of fit between public policy and popular sentiment. While not necessarily the will of the people, the intensity of political protests can provide some indication of the extent of a breach or gap. Whether by deflating or squashing, short-circuiting a protest at its outset in a dire attempt to restore the appearance of social harmony can mean that public officials lose touch with the popular mood and thus “fly blind.” The result could be a revolution in ten or twenty years, the ferocity of which could come as a complete surprise to the party officials.
Put another way, the apparent success of protests could belie the more subterranean possibility that public officials were still impervious to public demands. “In 2007, protesters in the coastal city of Xiamen, in Fujian Province, successfully forced the relocation of a PX plant that had been planned just 10 miles from downtown. In August 2012, officials in Dalian, in northeast China, announced that they would shut down a PX plant there after thousands of residents angrily confronted the riot police.” However, as of the fourth quarter of 2012, that factory was still operating. “We’ve seen the same pattern over and over again,” said Ma Jun, the director of the Institute of Public and Environmental Affairs. “Ignoring public concerns leads to confrontation. We can’t resolve all our environmental issues through street action. The cost is just too high.” That is to say, protests do not guarantee that government officials will heed popular sentiment, and the result of continued protests could be violent.
Seeming to acquiesce could simply be a strategy by which to assuage the public. “The announcement is just a way to ease tensions,” said Yu Xiaoming, a critic of the plant who took part in negotiations with the authorities on Sunday. Even if paraxylene is not produced in Ningbo, the chemical could be quietly made elsewhere. A pattern of such apparent placating, moreover, could give everyone the false impression of social and political cohesion between the Chinese people and the government. Minimizing broader knowledge that the protests had taken place only contributes to the misleading picture of social harmony instead of strife. Although Ningbo residents “held aloft smartphones and computer tablets and flooded microblog sites with images and vivid descriptions of the running battles with the police,” for example, the “Chinese news media carried no reports of the protests.”
In spite of the appearance being constructed by the apparent “listening” by government officials and the government-media censorship, pressure could nonetheless build and possibly erupt in contagious strife spiraling uncontrollably into full-blown revolution. That it would seem to come out of nowhere would only heighten the fear on both sides, and thus the sense of a lack of control and related violence. Any apparent gradual “opening up” toward democracy, as in permitting the residents of Hong Kong to vote for some offices, would be only on the surface, and even misleading.
One might imagine a flight-control tower with radar screens overstating the distance between planes in the air. Flight-control might dismiss the concerns of the pilots and even permit more planes into the area. A mid-air collision would come as a complete surprise to everyone, even though such an outcome would be more likely due to the perceptual misalignment. In terms of China, a full-blown revolution could be extremely disruptive not only within China, but also for the world given China’s sheer size and economic role in the global economy. Gradual reform in China is in everyone’s interest—even those officials interested in maintaining social harmony. 

Source:

Andrew Jacobs, “Protests Over Chemical Plant Force Chinese Officials to Back Down,” The New York Times, October 29, 2012.

On the Pretentiousness of Senior Water Rights in California

California water regulators proposed a record $1.5 million fine on July 21, 2015 against the Byron Bethany Irrigation District (BBID) in the Sacramento-San Joaquin River Delta. The agency claimed that the district had defied cutbacks that the California Water Resources Control Board had ordered by diverting water from June 13 through June 25. The complaint said that Byron Bethany had consumed an estimated 2,056 acre-feet of water[1] in spite of the fact that the agency had imposed a 25 percent mandatory cutback in urban water use and cuts to major agricultural interests.[2] I contend not only that the district’s board put the interest of a part ahead of the good of the whole (i.e., the common good), but also that the board did so out of a sense of entitlement based on the sheer longevity of the water rights in the district.

The district’s diversion of water up-stream was at the expense of the farmers down-stream. Due to difficulties overall in obtaining water, farmers in California fallowed an estimated 542,000 acres (220,000 hectares) of land in 2015.[3] Almond growers planted new trees nonetheless; almonds are a premium cash-crop there. Even so, both those growers and the siphoning water-district put their own private interests above competing private interests (i.e., other farmers) as well as the good of the whole. 

California’s government was managing water overall in the fourth year of a severe drought. The task was difficult even without self-aggrandizing water-users, and the actions of the latter made it even more difficult, and thus detracted from the public good. Accordingly, the government’s decision that the fine could be as high as $5.1 million if the case goes to a hearing is justified even though the threat is manipulatory in nature.

The mandated water-cuts pertained even to farmers with water rights going back nearly a century. The Byron Bethany district fell into that category.[4] This point played a significant role in the district board’s decision to keep the spigots open for a week. Russell Kagehiro of the BBID reacted to the proposed fine by stating, “The state board is choosing to make an arbitrary example out of B.B.I.D. at the expense of our customers and the communities their hard work supports.”[5] Significantly, he added that the district “will vigorously defend its right to water and due process. The landowners and others that rely upon B.B.I.D.’s senior water rights deserve no less.”[6] That he emphasizes the district’s rights to water—indeed, senior water-rights—says quite a bit about his rationale in taking the water. In short, the underlying mentality is that of presumed superiority over not only other districts, but also the republic of California.

That California is a semi-sovereign republic in the U.S. means that the member-state has the authority to manage the water within its borders unless the U.S. Government claims preemption. Whether or not the California Government can legally override long-held water-rights is a matter for a court to decide. If that government granted the rights, then it could retract them unless doing so would violate the California or U.S. constitution. Absent such a violation, a right is a function of government or else natural. In this case, the rights are presumably contractual and thus rest on a governmental rather than a natural basis. It is in virtue of sovereignty that a government can unilaterally cancel even a contracted right, for sovereignty itself means that no higher authority exists. In modern federalism, governmental sovereignty depends on the domain in question.

Because California’s government was dealing with a drought-crisis, a strong state-interest is satisfied in overriding even long-standing water-rights within California. Moreover, given the water-crisis, the cuts had a rational basis. According to this analysis, the California Government was on solid—indeed, parched—ground in fining the district. Complementing this conclusion is the more damning observation that the district’s unilateral diverting-action based on senior water-rights reflects not only a sordid selfishness, but also a related lack of concern for the welfare of others and even for the public good. Put another way, from the severity of the water-shortage as the context, a presumptuous mentality can be derived.

By analogy, had the first-class passengers on the Titanic insisted on extra room on the limited number of small boats at the expense of the men without such senior rights (i.e., passengers not in first class), the captain would have been well-justified in stepping in to order that the boats be filled to capacity for the good of the whole. That the sense of entitlement of some might actually sabotage not only the livelihoods of others, but also the good of the whole is a testament to just how squalid the mentality is.

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[1] An acre-foot is the amount of water that would cover a square acre up to a foot high.

[2] Adam Nagourney, “California Farm District Accused of Diverting Water,” The New York Times, July 21, 2015.

[3] Reuters, "California's Drought Will Cost the State $2.74 Billion This Year, Report Finds," The Huffington Post, August 18, 2015.

[4] Nagourney, "California Farm District."

[5] Ibid.
[6] Ibid.

On the Southwest American Drought: Looking to China

Lake Mead, a reservoir outside Las Vegas serving 40 million people in Nevada, Arizona, Southern California, and Northern Mexico, was at its lowest level (i.e., below 1,080 feet) in April 2015 since it was formed with the Hoover Dam.[1] Particularly for California, whose snow-melt would again be minimal, the continued drought was quickly turning dire. With a surplus of rain-water coming down on western Washington and Oregon, the U.S. Government could have dusted off FDR’s Civilian Conservation Corps (CCC) to activate the long-term unemployed (and the imprisoned) to assist the Army’s Corps of Engineers in constructing aqueducts and digging canals that would hook up with the extant canals running from the delta area north of Sacramento to southern California. It is not as though the Oregonians and Washingtonians would miss the water, and the Californian farmers could see to it that their best produce finds itself up north. Yet as easy as such a large-scale governmental project seems, the devil is in the details, which can actually be rather huge in themselves. China provides a useful case study that the Americans could, conceivably at least, benefit from—should they endeavor on a truly large-scale governmental project.

By April 2015, the Chinese central government had spent 308 billion yuan ($50 billion) on the South-North Water Transfer Project.[2] It’s sheer size is not for the faint-at-heart. The project “takes water from the Yangtze River and channels it across a half-dozen provinces and more than 1,700 culverts, aqueducts and other man-made structures.”[3] More than 400,000 people had been relocated. In spite of all of this effort, many towns in need of the water were continuing to pump up ground-water—causing the ground to sink even more. The shortage of water in Northern China had prompted cities to over-rely on their respective wells. Unfortunately, getting water that way was cheaper for the cities than from the transferred water via the project’s massive canals. Adding still more incentive to stay with the status quo, the cities in need of water had to build related infrastructure, including pumping stations and processing plants, in order to have access to the water from the project. Leaving this last bit to the city governments was not the smartest move by the project’s planners.

The lapse is particularly sad, given all the credit the Chinese government is due for having thought of and embarked on such a large-scale project capable of solving such a potentially devastating problem. At the time, Californians would have been aware of just how dire a water-shortage can be, yet the government of California was merely constructing more reserve-basins and ordering municipal water utilities to cut water-use by 25 percent. With all the surplus rain-water along the coast and western mountain-range in Oregon and Washington, why the U.S. Government had not stepped in to construct a massive Northwest system of massive canals taking the surfeit runoff to California is baffling to me.

The academic literature of international political economy may provide an answer. To explain why the Asian countries like Taiwan and South Korean have developed economically whereas Latin-American countries such as Panama have not, the literature distinguishes between strong- and weak-state countries. A strong state, or government, is able to resist pressure from society to consume governmental revenue. A strong state, for example, can say no to corporate welfare, for example—not just to spending more tax revenue on food-stamps!—whereas a weak state succumbs to corporate and other lobbying. The U.S. Government is a weak state because of the influence that defense-contractors, Wall Street, and corporate America have on members of Congress and the president. Put another way, after having spent roughly $4 trillion on the U.S. military in Afghanistan and Iraq, and trillions more in fiscal and monetary policy in the wake of the financial crisis of 2008, spending tens of billions more on a water-transport system linking the northwest with the southwest (including Arizona) was not even on the radar screen.

The difference here between China and the United States is not merely one of priorities; the Chinese government is stronger with respect to fending off powerful interests in China who want money from the government. The difference, in other words, is not between democracy and dictatorship; rather, plutocracy is a weak-state form of government (e.g., the U.S.). To be sure, dictatorship brings with it a myriad of problems, but that of being a weak-state incapable of large-scale infrastructure projects is not one of them. In the literature, democracy is associated with weak-states in Latin America—the electorate being able to vote for candidates promising more consumption of government resources at the expense of the sort of investment in infrastructure that could bring in foreign-direct-investment (i.e., multinational corporations). Similarly, we can add plutocracy to the weak-state side of the ledger. Whereas plutocracy is inherently weak from the standpoint of a government being able to resist pressure from private wealth, democracy is not so, as a citizenry can vote in candidates who campaign on resisting corporate welfare, whether to Wall Street or Lockheed Martin.

In short, for all the credit that the Chinese central government deserves in having gotten the huge canals built—and why were not the governments of California, Oregon, Washington, and the U.S. talking in similar terms?—a mammoth project must be designed beforehand with everything covered—from the intake of the water to the flow into municipal pipes. Otherwise, the entire project can falter. “Water, water all around, but not a drop to drink” could otherwise apply. Were the U.S. Government to contemplate such a massive project to solve the water-shortage in the Southwest, the planning should include an analysis of the financial incentives and disincentives that every actor along the process, including at the end-point, would have. Water flows downhill, and the incentives must likewise. Otherwise, a dam could pop up that keeps any of the water from reaching the end-users.

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[1] Reuters, “Lake Mead on Track for Record Low Water Level Amid Drought,” The Huffington Post, April 24, 2015.

[2] Te-Ping Chen, “China Water Project Leaves Some Cities Dry,” The New York Times, April 24, 2015.

[3] Ibid.

California’s Elongated Drought: Warming to a Changing Status-Quo

With the winter of 2014-2015 failing to deliver much of a snowpack to California, Californians entered a fourth year of drought. The measurement on March 3^rd of the snowpack was the water equivalent of five inches, or 19% of the average for that date.[1] The drought’s extension ran counter to the conventional wisdom that droughts last three years in California. Such “wisdom” is problematic not only for its specific content in this case, but also because of the underlying presumption of epistemological infallibility. Ok, I’ll unpack this bit of creative verbosity. Without being aware of it, we tend to assume that we can’t be wrong about things we have not studied. In fact, we even dismiss the knowledge of those who are learned in a given subject in favor of our own belief that we can’t be wrong about what we suppose we know. This tendency of the human brain gets our species in a lot of trouble, yet we as a species are nearly blind to underlying drought.

Felicia Marcus, chair of the State Water Resources Control Board, said at the time, “Last year people thought we were in a regular three-year drought cycle and it would rain next year.”[2] Even though people were aware of global warming, they presumed that what they thought they knew of the drought cycle was still applicable. Underlying this assumption is the more basic one that tomorrow will be like today and yesterday.

Problematically, the three-year drought-cycle presumption may have made California’s water-situation even worse. With the rain in December 2014, Californians generally may have taken longer showers and left their bathroom facets on while brushing their teeth under the mistaken assumption that drought must be ending. The following month was dry, so people watered normally dormant landscapes.

Even in trying to explain the elongated drought, people were getting it wrong in concluding that the cause was changing precipitation patterns. Global warming, evinced in California’s record average temperature in the winter of 2014-2014 of 45.6 degrees (F), is the actual cause. “The normal cyclical conditions in California are different now from what they used to be, and that’s not because the long-term annual precipitation changed,” Noah Diffenbaugh at Stanford’s Woods Institute for the Environment explains. “What is really different is there has been a long-term warming in California . . . (a)nd we know from looking at the historical record that low precipitation years are much more likely to result in drought conditions if they occur with high temperatures.”[3]  Yet in spite of such evidence and that of the Earth’s atmosphere as warming above and beyond normal cycles, enough people cling to their antiquated knowledge as if they cannot be wrong that I suspect that a human tendency is involved.

“It’s a three year drought,” someone in Sacramento says. The sheer declarative tone has the ring of hubris because the person has not read anything on the drought. The assumption of knowing nonetheless is precisely where the problem lies, if I am correct in my theory here. The human mind may put too much stock in its own machinery and its output. Another Californian says in San Diego, “Southern California is suffering from a shift in the precipitation pattern.” Let’s say he has not read this; it is his conclusion, or one of his friends has told him. Even without reading anything on the science of climate change even in a newspaper like The New York Times, the San Diegan may dismiss Diffenbaugh’s statement out of hand. It is the sheer dismissiveness that strikes me as arrogant, even strange. The Californian may even say (as I have heard before), “I don’t need to read the science; I know it is in dispute.” Well, actually it is not, but such a person—such a mind—would not know it because it is closed off—a closed system—and yet it is utterly unaware of what it itself has done to itself. Like the light from the most distant star, the news of the deed has not reached the doer yet—the doer who presumes to know beyond what any actual learning can bestow legitimacy.

Abstractly, I hypothesize (i.e., propose) that the human brain contains a vulnerability in bringing to experience—structuring it rather than from it (i.e., a priori rather than a posteriori)—the presumption of knowing more than is actually known and furthermore not being capable of being wrong even about such “knowledge.” It is as if a person were to go to some neighboring houses and without entering any of them proceeding nonetheless to speak in a tone of definitiveness to the occupants about what they should clean up inside. The mere tone would ooze out arrogance and presumption, and yet the speaker could be oblivious to what he is projecting from his or her own mind onto experience and thus the world—structuring it as he perceives it.

Philosophers may recall Kant’s claim that the mind provides its own structure on space and time themselves—and not from experience. Such synthetic, a priori ideas as we bring to our perception of space and time are like the epistemological assumptions that we carry around with us all the time. In both cases, we have no clue that we are bringing these ideas to the dance because we have them constantly with us. Noticing them would be like fish noticing the water in which they spend their entire lives. That which is a constant for us can easily be invisible rather than transparent to us, and thus escape our notice. Yet as Kant points out, we can notice, through reasoning.

Probing a person on knowledge we know lies beyond his or her reach, we can see the problematic assumptions in the absurdity to which he or she will go to defend the purported knowledge. Like arrogance on stilts during an increasingly common flood from a storm surge in Miami, the presumption should be under water rather than held above as if it were Moses incarnate coming down the mountain with a new tablet. Unfortunately, the mind’s internal defense-mechanisms can block the reception of even such obvious feedback, so it is probably pretty rare for the mind to “see” the “water” in which it has always resided. If I am correct, the mind itself—hence not out of experience—structures knowledge in terms of presumptuousness. That is to say, the problematic assumptions are not in the knowledge; rather, they come from the human mind and are projected onto the purported knowledge such that learning or becoming informed are assumed to be optional rather than requisite. The mind itself presumes itself so entitled even though the assumption is untenable. The fallacious thinking should be under water (naturally oblivious to it) rather than looking down from stilts as if not only legitimate at water-level, but also an authority above.

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[1] Adam Nagourney, “Alarm Rises For a State Withered By Drought,” The New York Times, March 18, 2015.

[2] Ibid.

[3] Ibid.

Federalism and the Democratic Deficit: The E.U. as Suboptimal?

One major criticism of the E.U. has concerned its “democratic deficit.” The European Commission, the E.U.’s executive branch, has taken most of the criticism because the bureaucrats are not elected. Even though the European Council consists of elected state executives, the state legislatures are viewed as “closer to the people” and therefore more democratic. At the E.U. level, the European Parliament is the most directly democratic, as the EP’s representatives are directly elected by E.U. citizens. Therefore, one means of reducing the “democratic deficit” has been to increase the Parliament’s authority relative to those of the Commission and the Council. Lest it be thought that this solution has no drawbacks, the case of whether E.U. ships should be permitted to be beached for recycling in South Asia illustrates a problem.

Beaching old ships for recycling in South Asia is cheaper but can result in leaks of toxic chemicals. Image Source: Agence France-Presse/Getty Images

Facing pressure from South Asian governments, the E.U. state leaders on the European Council opposed a ban on beaching over the objections of environmental groups. Facing a different political dynamic, the European Parliament favored the ban. After weeks of negotiations, the parliament and council agreed to a compromise. Beaching a ship would be allowed as long as “fixed structures” are involved. As this wording is notoriously open to interpretation, clarity was sacrificed for the sake of a compromise.[1]

Interpretation may not even be necessary, as the E.U. has no language in the compromise to prevent ships from changing their flags, Patrizia Heidegger of the NGO Shipbreaking Platform observed. “So the stronger language won’t mean much,” she added.[2] The compromise looks a bit like Swiss cheese. Lest this flaw be attributed solely to politics, that the Council had to negotiate with the Parliament on the matter means that the solution to the “democratic deficit” is at least partly to blame. That is to say, public policy can suffer from efforts to reduce the deficit.

Of course, that the E.U. consists both of states and citizens means that the Council and Parliament both have vital roles in the E.U.’s government aside from the issue of democracy in a federal system. So public policy being diluted in the negotiation process is also a necessary part of having a federal union of states with direct effect. Even if no “democratic deficit” existed, in other words, the involvement of both the Council and the Parliament, and thus the negotiation, would be on firm ground. Even so, this “cost” of having a federal union can be minimized by the principle of subsidiarity, wherein legislation is to be accomplished at the lowest governmental level possible. In the case of the U.S., the problem of “lowest common denominator” federal legislation can in principle be mitigated by the fact that Congress’s powers are enumerated, and thus limited, with the residual sovereignty residing with the state governments. The problem is thus when too much legislation occurs at the federal level, whether in the E.U. or U.S.

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1. Costas Paris, “EU Won’t Ban Ship Recycling on Asian Beaches,” The Wall Street Journal, June 26, 2013.

2. Ibid.