Mass incarceration has become a hot topic on both the Right and the Left. Apparently, everyone looked around and suddenly noticed that the number of people in prison has simply exploded. The Left are offended by mass incarceration because they believe the criminal justice system unfairly targets minorities and the poor. The Right are up in arms over the situation because prisons are terrifically expensive and needless incarceration is a waste of money. And the topic on a potential crisis of overcriminalization has risen from all these points.
Here at Bold Business, we try to get to the root causes of pressing problems. As Jim Copland points out in this interview, with 4,500 federal crimes on the statute books, and 300,000 regulatory rules and regulations—many of them contradictory—, it is impossible for a typical citizen to avoid breaking many laws every single day. No single person knows the entire federal law code, making it difficult to ensure that one’s actions are legal. This fact has led to a situation in which businessmen and women find themselves increasingly vulnerable to attacks from a variety of federal regulatory agencies. The explosion of regulations and laws has simply made it impossible for a typical business person to have any certainty that they are in compliance, even when performing the most mundane tasks.
On the Matter of Due Diligence and ‘Gotchas’
Due diligence cannot happen if the applicable law code is too large and complex. Many business people are forced to simply throw in the towel and purchase errors and omissions insurance to protect themselves. They strive for compliance with the law that is commonly known. But they are perfectly aware that buried in those hundreds of thousands of pages, there are more than a few “gotcha” clauses. And those gotchas can come with heavy fines or jail time. Such a scenario may produce a higher probability of a crisis of overcriminalization.
One notable example which has been in the news of late was the case of Elliot Spitzer’s attack on Hand Greenberg of AIG. Spitzer brought numerous charges against Greenberg during the ‘crusading’ years immediately post-Enron. Spitzer himself was unable to see the case through, due to his involvement in a prostitution scandal in which he was identified as ‘caller 9’. Yet, even after Spitzer’s departure, the case against Greenberg and AIG continued, for 12 years. In the end, the case was settled for a meager $9 million by the current board of AIG, which admitted to two non-material accounting errors. Note that this case was brought forward not under federal law, but under the much-reviled Martin Act of New York—which allows the conviction of fraud without demonstrating the intent to deceive.
Avoiding a Crisis of Overcriminalization
Intention is at the heart of the Judiciary subcommittee led by Representative Goodlatte, R-Virginia. Many citizens from the business and academic communities are concerned that the sheer scope of the federal regulatory code leaves business management vulnerable to onerous fines and even jail time. The regulatory environment is such that they are frequently unaware that they are in violation at all. In addition, the regulations that carry these severe penalties are often not in the least bit obvious to any “normal” person. In other words, they cannot be intuited from best practices or common sense. Many are calling for a return to the former intention standards, known as mens rea, for at least some regulations. For violations that have little or no public impact and were simply errors without any intention to do harm, criminal prosecution is simply inappropriate.
It is a dangerous situation when ordinary citizens can be jailed for violations of rules and regulations that seem pointless and overblown to the average person. Failure to stop at a red light is one thing, public safety is at issue; failure to fill out “line 42 on page 74 of the special form for what-not” is hardly the type of thing that presents an imminent threat to the public. Yet, with 300,000 regulations, there is a “line 42” out there for everyone. In addition, these regulations can be used capriciously and vindictively, undermining the very notion of law and justice as commonly understood in the United States.
As Jim Copland notes, Chairman Goodlatte and his committee are doing yeoman’s work, performing the unglamorous task of rolling back arcane, needless, and burdensome regulation. Sometimes the most important service doesn’t get the headlines it deserves. Goodlatte’s committee can bring much-needed sanity and predictability back into the American regulatory system. Thus, perhaps, we can avoid a crisis of overcriminalization in the future.
The Trans Pacific Partnership (TPP) has been shredded. NAFTA is in President Trump’s crosshairs. Other trade agreements are stalled or collapsing. Brexit won. World trade volume is slowing down. In 2016, cross border investment by multinationals fell by 10% to 15%. The proportion of sales that Western firms make outside their home has shrunk. The profits of multinationals are falling and the flow of new multinational investment has been declining relative to GDP. The Economist recently declared that “the global firm is in retreat.” Has globalization hit a wall?
In 2016, cross border investment by multinationals fell by 10% to 15%. Is the “global firm in retreat”?
Globalization has been the Bold idea animating the world economy at least since the 1970s. Its adherents point to the fact the number of poor people has fallen in the past 40 years from more than two billion to just under one billion. This is an astonishing achievement, given the increase in world population and the long-term slowing of global economic growth, especially since 2008.
While impressive, poverty reduction has not come without a cost. The globalization that has rescued so many in poor countries has harmed some people in rich countries, as factories and jobs migrated to where labor is cheaper. Globalization is less splendid for those who not only don’t reap its benefits, but suffer from its impact. Even before Donald Trump’s upset victory at the polls, we have long known that less-educated and lower-income Americans have seen little economic gain for four decades.
Large segments of the population in advanced countries have not been doing well: in the U. S., the bottom 90 percent has endured income stagnation for a third of a century. Median income for full-time male workers is actually lower in real (inflation-adjusted) terms than it was 42 years ago. At the bottom, real wages are comparable to their level 60 years ago. The effects of the economic pain and dislocation that many have experienced are even showing up in health statistics. For example, the economists Anne Case and Angus Deaton, this year’s Nobel laureate, have shown that life expectancy among segments of white Americans is declining.
The failure of globalization to deliver on the promises of politicians has surely undermined trust and confidence in the “establishment.” And governments’ offers of generous bailouts for the banks that had brought on the 2008 financial crisis, while leaving ordinary citizens largely to fend for themselves reinforced the view that this failure was not merely a matter of economic misjudgments. Globalization isn’t the only reason for the hollowing out of the nation’s workforce—technology is a major component—but it is the reason most citizens blame.
But globalization isn’t so much slowing as it is taking new forms. Globalization 4.0 needs another Bold idea to save it from itself. The most potent form of globalization today is occurring inside nations, according to Holbert Harris, chairman of economics at George Mason University. Instead of a dark cloud of protectionism descending upon the world as our nomanklatura would have us believe, events are forcing multinational companies to rethink their competitive advantage again. Some of the old arguments for globalization have become obsolete in part due to globalization’s success. Also, large firms no longer have a lock on new ideas and innovation. Technology giants with their extensive worldwide supply chains are still generating value. Apple made $46 billion abroad last year five times more than GE which is often considered the bellweather.
There have been previous backlashes against globalization such as those that came after the first and second world wars. But it’s no longer about how poor countries can get rich but about ensuring that the benefit of wealth creation is not confined to the 1%. The responsibility for making sure globalization works for all lies with two groups of people: politicians and businesspeople and neither group seems an ideal steward. Nonetheless both groups have received their wake-up call. Daniel Hannan, the conservative MEP who the Financial Times dubbed the architect of Brexit, disputes the idea that either Brexit or Trump’s election signals the beginning of a dark age of protectionism. “The protectionists always fail,” he told the FT. “They always end up delivering the sharpest fall in living standards to the people who are their biggest supporters.” Trump knows he cannot allow that to happen. But he also knows that globalization in its present form needs a bold idea if it is to be refreshed and be sustainable. Business leaders too must adapt and change.