Although it really isn’t supposed to work this way, many high-level Chinese Communist Party senior regional leaders – who are charged with regulating companies, factories, utilities, mining operations, etc. within their provincial authority – sit on the boards of directors of the very entities they are charged to supervise. And yep, they get paid, have stock incentives and clearly have a stake in what they regulate. Often, where they don’t have a direct interest, their family members often fulfill those roles instead. As party officials move way up into the highest reaches of the Party, they are forced to make a big choice. A serious promotion pretty much requires dropping out of all of those lucrative relationships; some party apparatchiks turn down the promotions accordingly… or transfer interests to family members.
So when mandates float down from Beijing to “clean up” polluting industries, the regional Party regulators send that message to the heads of the industrial entities within their charge, who respond with the relevant cost analysis, time line and impact on earnings and operational profits. Almost uniformly, the regulators see their stock falling, their profit shares dropping like a stone and their board payments reduced… and so it seems that “waiting a bit longer” is a more prudent course of action, allowing the company to explore “alternatives.”
This is the kind of pervasive corruption that China’s new leader, Xi Jinping, wants to stop as his people face the clearly toxic air in Beijing, the fouled waterways and lakes everywhere, and the polluted farmland irrigated with chemically-dangerous water. A man who wants to be very solidly in charge, well-schooled in the ancient Chinese disciplinarian leaders he admires, has ordered his family to disengage from their corporate holdings. He knows that making his land livable requires getting the regulatory corruption under control, a part of Chinese practices that has made too many very, very rich… powerful interests who do not want to let go.
But before we get smug in our “anti-corruption” attitude, let’s be clear how we favor those wealthy incumbents over the vast majority of citizens. You can start with letting rich folks dominate the political airways with their expensive advertising spends (the off-shoot of Citizens United), the ability of state legislatures to gerrymander districts to disenfranchise votes who oppose their views, the tax code that favors investors (and their representatives) over workers and end up by looking at how administrative regulators are almost always recruited from the industries they are asked to regulate.
This “insider” factor is ubiquitous, a political payoff to some, access to “those who have the relevant knowledge” to others. It happens every day, everywhere. A recent example? “‘The White House announced [October 16th] that it will nominate former Google lawyer Michelle K. Lee to lead the U.S. Patent and Trademark Office, potentially handing Silicon Valley a key victory and ending a two-year tussle for the agency's leadership,’ reports The Washington Post's Nancy Scola.’ Lee has been managing the 10,000-employee Patent Office day-to-day since being appointed deputy director in January. But efforts to permanently elevate her to director have been stymied by powerful outside groups —particularly pharmaceutical companies, which backed an industry insider for the job." Washington Post, October 17th. OMG… entire industries fighting to place their favor son or daughter “inside.” Wow! Since these aspects of our system are legal, they don’t break any laws, so we don’t label them as “corruption,” even those the practices and the results are the same.
Operating to stem competition, allowing the rich to function under a different set of rules, suppressing dissent and providing inherent advantage to powerful incumbents is what corruption is really all about. When we color the ability to do this as “legal,” who are we kidding? The Supreme Court is now looking at one such “suppress the competition under color of law” structure in a state that is infamous for gerrymandering, eviscerating its own environmental legal authority with industry insiders and twisting and turning at every opportunity to favor powerful incumbents at the expense of most. It’s a little case with potentially big consequences.
The issue at bar concerns dentists. “In North Carolina, the practice of dentistry is regulated by the Board of Dental Examiners. The board is composed of eight members, six of whom are practicing dentists chosen by other dentists… The board in 2002 responded to complaints by dentists about cheaper teeth-whitening services offered by vendors at shopping malls, spas and other venues. It issued cease-and-desist orders and even sent letters to shopping-mall owners, discouraging them from leasing space to teeth-whiteners.
“The FTC went after the board in 2010, and lower courts upheld its view that the board was composed of private actors protecting their own interests rather than those of consumers and that the state was not actively supervising it.
“Justice Elena Kagan said the concern was that a board composed almost entirely of dentists, who charge more for the service, is ‘acting to further its own interests rather than the governmental interests of the state.’ She added, ‘And that seems almost self-evidently to be true.’
“Other justices were worried about jeopardizing the practice of states entrusting regulation of specialized professions such as law and medicine to those who best know the subject… Justice Stephen G. Breyer said there was good reason, for instance, for states to rely on neurologists to oversee who can practice brain surgery. ‘I don’t want a group of bureaucrats deciding that,’ Breyer said. ‘I would like brain surgeons to decide that.’
“To protect the public, states are exempted from antitrust laws when they act to regulate certain professions. But if they farm out the job to a board of private individuals, the exemption applies only if the state ‘actively supervises’ the board’s work and the board is operating under a ‘clearly articulated and affirmatively expressed’ state policy.” Washington Post, October 14th. Ultimately, the Court will render its decision, but how do you feel about our system which in many instances we legalize practices that would prosecuted as “corruption” in other countries? And if this bothers you, what should we do about these realities?
I’m Peter Dekom, and transparency and open discussion of such twisted laws form one heck of a good start in my opinion.
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