American Business Is Criminalized?

Government agencies are extortionists?

In this week’s cover story, The Economist announced “the criminalisation of American business”* is in full flower. The cover can be read as either Big Corps are criminals or criminals are picking on Big Corps. Inside it turns out the bad guys are regulators whose creativity could harm 21st Century capitalism.

What really gets The Economist steamed is that regulatory agencies are playing by new rules. My favorite is “incentivised integrity programmes”** created by regulators to snag part of the hefty fines imposed on Big Corps. The magazine worries about a kind of agency extortion of big fines from Big Corps, part of which goes into regulatory coffers.

My alternative explanation is regulatory agency discovery of “profitability.” This is regulatory innovation, not corporate exploitation. The Economist should be congratulating the regulatory “industry” for seeking profits, i.e., operating the business of regulation more effectively and efficiently. There should a Medal of Regulatory Honor when Big Corps are made to pay some expenses of prosecution—especially as penalties for tainted bonds, faulty ignition switches and phony pharmaceutical studies.

Nor did The Economist mention that big penalties are not exactly as big as they sound when any are tax deductible. That lowers corporate income taxes and raises the deficit.

At the article’s end, The Economist dragged out the worn-out argument that the best regulation is market-regulation: “…there is little reason…to pay a large fine: the market imposes a larger fine in any event.”*** Wrong: Not in a corporate state like the USA.

The Economist is usually sane and savvy. But the old protective instincts remain that capitalism works best when regulated least. Works best for whom? The Economist did not say.


*See the cover and the article on pages 21-24 of The Economist for August 30-September 5, 2014.
**See page 22 of the article. The phrase is headed for my Corp-Speak collection.
***Page 24 of the article.


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