[IMC-Editorial] Op-Ed Submission: Bush's Assault on Businessmen Did Not Work

[The Ayn Rand Institute]

Dear Editor, 

Please consider this Op-Ed submission from the Ayn Rand Institute.

THE COST OF THE "ETHICAL" ASSAULT ON HONEST BUSINESSMEN
Bush's Regulatory Crackdown on Business Has Harmed the Economy

By Yaron Brook and Alex Epstein

In a major speech on July 9, 2002, in the wake of the Enron and
WorldCom scandals, President Bush announced a series of regulatory
initiatives to "expose and root out corruption" in American business.
Stressing that "the vast majority of businessmen and women are
honest," and that reforms "should demand integrity, without stifling
innovation and economic growth," Bush said that his proposals "should
be welcomed by every honest company in America."

If Bush had been honest--if his initiatives were surgically directed
at business crooks while leaving honest businessmen free--then we
should have experienced a year of vigorous business activity and
economic success. Instead, we have experienced a year of business
stagnation and economic disappointment. Businessmen are, in the words
of Jack Welch, "hunkering down"; they are investing less money in new
technologies, new manufacturing plants, research and development; they
are reluctant to enter mergers, to formulate new strategies, *to take
risks*--and our economy is suffering as a result.

The cause of the business stagnation is that Bush has done the
opposite of what he promised: his administration has persecuted the
honest, productive businessmen who drive the economy.

Consider the Sarbanes-Oxley accounting law, which Bush eagerly signed
last year. Contrary to the claims of politicians, this is not a law
against accounting fraud--such laws have always existed--but a law
that gives the government free rein to micromanage the accounting
decisions of all public companies, and forces *every* company to spend
time and money complying with onerous new regulations. Worse, since
the government-mandated accounting standards are notoriously fluid and
nonobjective, Sarbanes-Oxley's provision that a CEO is committing
fraud if his company's books do not present "fairly, in all material
respects, the financial condition and results of operations" of his
company--with "fairly" and "material" up to the subjective
interpretation of government overseers--the government, in the words
of one S&P 500 CEO, "can put any CEO in jail anytime they want to."

The basic moral premise behind a law like Sarbanes-Oxley is that
businessmen are not innocent until proven guilty--that they are
inherently disposed toward crime and thus must be collectively
monitored and shackled by virtuous bureaucrats.

It was on this premise that Bush went beyond Sarbanes-Oxley and gave
regulators at all levels the green light to crack down on businessmen
*in general*. Since then, bloodthirsty bureaucrats have been gleefully
enforcing previously un-enforced regulations, harassing CEOs with
threats of jail time, and more aggressively blocking mergers and
acquisitions.

On Wall Street, the SEC and New York Attorney General Eliot Spitzer
have been intimidating firms and executives into paying huge
settlements on dubiously defined offenses such as "tainted" research
or IPO "spinning." In telecommunications, a potential merger between
Echostar and Hughes, which seemed set to go through, was derailed
thanks to what a *Wall Street Journal* news story called FCC Chairman
Michael Powell's "newfound aggressiveness." Over at the FTC,
meanwhile, the agency has been flexing its antitrust muscles to
prevent mergers in even the most obscurely defined markets, such as
"superpremium ice cream," "jarred pickles," and "food service
glassware." Following the government's example, embittered stock
market losers and their lawyers have launched a wave of shareholder
lawsuits against productive corporations like Intel and Cisco simply
because of declines in their stock market value.

The essence of the new environment is that now, more than ever,
businessmen *cannot know what is legal or illegal until after the fact*.
They have no means of knowing in advance whether their accounting
methods will get them thrown in jail, whether they will be bankrupted
by a class-action lawsuit for "defrauding shareholders" if their new
product does not sell as well as expected, or whether a strategic
merger that takes years of planning will be thwarted by some ambitious
bureaucrat. The result is that honest businessmen have been paralyzed
when it comes to steering their companies.

That businessmen are especially "risk-averse" right now is a fairly
commonplace observation--but the crucial point is that they are
risk-averse *because* of the government crackdown, which has compounded
the risk inherent in all investment and management decisions with the
severe risk of arbitrary government reprisal. Thanks to Congress and
the administration, taking risks has become too risky.

On the anniversary of the speech that heralded so much economic
stagnation, we should demand that our politicians repent for *their*
corporate malfeasance by ending Sarbanes-Oxley, reining in the
bureaucrats and, most important, preventing future costly injustices
by adopting the moral premise that businessmen are innocent until
proven otherwise.
______________________________________________________________________________
Dr. Brook, a former finance professor, is executive director of the
Ayn Rand Institute (ARI). Alex Epstein is a writer for ARI
(www.aynrand.org) in Irvine, Calif. The
Institute promotes the philosophy of Ayn Rand, author of Atlas
Shrugged and The Fountainhead.  Send comments to reaction at aynrand.org

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