Category: Technology and Regulation

Writing two and a half years ago, Acton Research Fellow and Director of Media Michael Miller warned of the dangers of over-managed capitalism.Washington’s foolhardy manipulation of the housing market brought our economy to its knees in 2008, but it seemed the gut-wrenching panic hadn’t had taught us anything. The recovery tactics weren’t fundamentally any different from financial policy in the mid-2000s, but the establishment couldn’t conceive of doing things any differently. Said Miller:

In The Wealth of Nations, Adam Smith warned, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Smith, who published his landmark work in 1776, warned of corporate collusion, but we’re experiencing something much more insidious — not just businesses, but business and government and a host of others all meeting, and colluding, at the posh Swiss resort town of Davos. It is Adam Smith’s nightmare.

This isn’t free market capitalism. It’s Davos capitalism, a managerial capitalism run by an enlightened elite — politicians, business leaders, technology gurus, bureaucrats, academics, and celebrities — all gathered together trying to make the economic world smarter or more humane. It might even be, as Bill Gates famously said last year at Davos, a more “creative” capitalism.

As Miller was writing those words, the White House was shunting billions of dollars of stimulus into green energy projects like Solyndra. The use of funds was more “creative” than a money bonfire on the National Mall, I guess.

Ok so the Occupy Wall Street set, the ones protesting corporate greed — the ones protesting a third ski chalet for the chief of a Fortune 500 company — surely they understand what Miller was talking about. General Electric’s CEO Jeffrey Immelt is the poster boy of creative capitalism (or, as conservatives call it, crony capitalism). He makes millions of dollars a year, lives in New Canaan, Conn., and was even the president of his Ivy League fraternity. His company has benefitted from the largess of the Federal Government (Think Progress was enraged when it found out that GE has gotten $4.7 billion dollars back from the IRS in the last three years). In a free market, Immelt wouldn’t still be in charge of GE: the company’s share prices have fallen 60 percent since their peak in 2001 just after he took over.

But the protesters don’t want the government to get out of business. In fact, they seem to think that if the government were just more involved in GE’s operations, everything would be more fair. Miller explains why the last thing we need is further collusion between Uncle Sam and GE.

The late Samuel Huntington coined the term Davos Man — a soulless man, technocratic, nation-less, and cultureless, severed from reality. The modern economics that undergirded Davos capitalism is equally soulless, a managerial capitalism that reduces economics to mathematics and separates it from human action and human creativity.

And we looked up to Davos Man.Who wouldn’t be impressed by the gatherings at the annual meeting of the World Economic Forum at Davos, a Swiss ski resort? Sharply dressed, eloquent, rich, famous, Republican, Democrat, Tory, Labour, Conservative, Socialist, highly connected, powerful and ever so bright.

Then, when the whole managerial economy collapsed, the managers and technocrats lost faith in markets. But they did not lose faith in themselves, and now they want us to entrust even more of the economy to them.

And who’s going along for the ride? Occupy Wall Street. When the jet set lost faith in markets, it was natural that they didn’t loose faith in themselves. How did they pull the wool over the eyes of anyone else though? How do they maintain an army of fiercely independent stooges?

It’s easy, it turns out, when that army’s economics is missing the understanding of human nature that ought to undergird it. The Davos men aren’t recognized for what they are — “soulless, technocratic, nation-less, and cultureless” — by camps of protesters who have no conception of culture, of fatherland, or even of soul.

Kishore Jayabalan, director of Istituto Acton in Rome, is quoted extensively in a story about the Vatican’s note on economic centralization written by Edward Pentin, a reporter for the National Catholic Register. If you wonder why the Acton Institute is around — why we feel the need to connect your good intentions with sound economics — well, Kishore explains:

Kishore Jayabalan… welcomed the Vatican’s attempt to deal with the economic crisis, but he said their conclusions were based on “political and economic ignorance rather than experience.”

But the note, written by the Pontifical Council for Peace and Justice, lacks more than sound economics; it lacks theological depth. It speaks throughout of the common good, but without a moral framework, that common good can have little ethical consequence. The kind of economic reform the note calls for could only be motivated by a conception of the common good rooted in a full, Christian understanding of human nature. Jayabalan again: “[the note] doesn’t speak of God or the natural law and so neglects this substantial notion of the common good,”

There is comparatively little talk even of greed and idolatry in the note — those vices seem get more attention at Occupy Wall Street drum circles than at the PCPJ. We’ll talk about them though:

Jayabalan, a former official at the Pontifical Council, said greed and idolatry are permanently recurring temptations that require “constructive ways” to combat them. And yet “quite surprisingly for an office of the Roman Curia and from a Catholic perspective, the note does not tell us much about the spiritual battle that must take place.”

Rather than draft this note, Jayabalan said the Vatican should have drawn on the “economic wisdom of the division of labor” which would have told them “to stick to what it knows and does best.”

Samuel Gregg is quoted in today’s New York Times story about the Vatican note calling for a central world bank — he gives the final word on the document. The “politically liberal Catholics” quoted before him reveal that they have missed a crucial distinction in the document produced by the Pontifical Council for Peace and Justice. Gregg, of course has picked up on that distinction; he wrote yesterday:

Putting aside doctrinal questions, this text also makes claims of a more strictly economic nature…. The text makes a legitimate point about the effects of a disjunction between the financial sector and the rest of the economy.

Unfortunately, many of its authors’ ideas reflect an uncritical assimilation of the views of many of the very same individuals and institutions that helped generate the world’s most serious economic crisis since the Great Depression.

The academics and activists who see in the document a way forward to socialism have missed the split between the note’s diagnosis of the world economy, and its proposed economic reforms. I cannot resist quoting G.K. Chesterton: “The reformer is always right about what is wrong. He is generally wrong about what is right.”

To say that “the time has come to conceive of institutions with universal competence,” as PCPJ President Cardinal Turkson did yesterday, is all well and good, but the possibility of such institutions running effectively is another matter.

Indeed, Kishore Jayabalan, the director of Istituto Acton and a former staffer at the Council, asked the National Catholic Reporter, “What makes the [Council] think that ‘global’ leaders will succeed where so many national ones have failed? It is a shame this document is based more on sentimental political hopes for world government than on actual experience and expertise of financial markets.”

The green tech firm Solyndra secured at $535 million federal loan guarantee in 2009 and was touted as an example of a promising green future. A month ago, the company went bankrupt. Here are the top five lessons we should learn from Solyndra’s collapse.

5. Both sides of the aisle are involved. Republican support of federal “investment” is routine — in fact, the DOE program that made Solyndra’s loan was approved by President Bush. It is true that Solyndra’s original application to the Bush era loan program was denied by the Office of Management and Budget (OMB), but then stimulus bill was passed, with Republican support in the Senate.

4. Stimulus tends to be wasted, and gigantic stimulus is wasted gigantically. The DOE guaranteed loan program’s budget was almost doubled by the stimulus bill, and it became more a money-shoveling operation than a subsidized bank. As Steven F. Hayward wrote in The Weekly Standard, “More than one DOE staffer told me at the time that they didn’t know how they were going to be able to spend all the stimulus money being thrown at the department.”

(Personally, I thought the stimulus bill was great — stimulus money disbursed by the NIH funded my part time job in a lab through college and a lot of the fancy equipment I got to use, but it’s unclear how that use of public money accomplished the Congress’s goal.)

3. Government money turns businesses into consumers, not producers. The Washington Post reported that Solyndra began spending money wildly once it received the DOE loan. “After we got the loan guarantee, they were just spending money left and right,” said a former engineer at the company. And as the Energy Department found itself disbursing money rather than “investing” it, businesses that wanted that money adjusted their efforts accordingly. Investing decisions are made based on a company’s product: can it sell enough to profit its investors? Free money is passed out with considerably less forethought.

Businesses that are serious about getting their share of government cheese (especially businesses like Solyndra for whom the government loan is four or five times the amount of a private investment) turn their focus away from producing something in a financially sustainable way, and become as dependent on government as the clients of the Roman Senate.

2. This story is applicable to the rest of green jobs. Solar trade groups have been defending federal support of the industry, saying for example “You can’t judge an industry by the bankruptcy of one company.” But though Solyndra had its personal demons — its chief competitive advantage evaporated, for instance, when the price of polysilicone fell 85 percent — there’s nothing to distinguish the main faults of this loan deal from any other the DOE might make. These types of disbursals, whichever bureau they come from and whomever they go to, encourage consumption instead of production.

1. Entrepreneurs drive economic growth. Government subsidies pervert the natural incentives of a free market, which is why they’re a bad way to create jobs. They also pervert the nature of work, and in that way violate the Christian vocation. As I explained in an Acton Commentary, the government commodifies workers when it buys jobs, because it strips them of the dignity of productive work and treats them like so many votes to be bought.

Acton’s director of research Samuel Gregg has a piece over at The American Spectator that may surprise big government liberals. (We know you read this blog.) In “Free Market Sweden, Social Democratic America,” he lays out the history of Sweden’s social democracy — its nature and its effects on the country’s economy — and then draws lessons for the United States. The Scandinavian country isn’t quite the pinko nanny state Americans like to look down upon, and we’ve missed their reforms of the last two decades.

Gregg explains that Sweden’s dramatic mid-century expansions of government were portrayed as rooted in the traditional values of the homeland, so Social Democrat governments escaped the soft-Marxism tag, and were able to do pretty much as they pleased. Social programs were also characterized as coverage of universal rights, to be imposed by general taxation. Then came

the decision of governments in the 1970s to hasten Sweden’s long march towards the Social Democratic nirvana. This included expanding welfare programs, nationalizing many industries, expanding and deepening regulation, and — of course — increasing taxation to punitive levels to pay for it all.

Over the next twenty years, the Swedish dream turned decidedly nightmarish. The Swedish parliamentarian Johnny Munkhammar points out that “In 1970, Sweden had the world’s fourth-highest GDP per capita. By 1990, it had fallen 13 positions. In those 20 years, real wages inSweden increased by only one percentage point.” So much for helping “the workers.”

Economic reality was painful, but Sweden responded, and began to unravel some of its “progress,” reducing the public sector and even allowing private retirement savings. Unemployment was still high though — about 20 percent — in large part because the country’s tax structure encouraged joblessness.

But with a non-Social Democrat coalition government’s election in 2006, Sweden’s reform agenda resumed. On the revenue side, property taxes were scaled back. Income-tax credits allowing larger numbers of middle and lower-income people to keep more of their incomes were introduced.

To be fair, the path to tax reform was paved here by the Social Democrats. In 2005, they simply abolished — yes, that’s right, abolished — inheritance taxes.

But liberalization wasn’t limited to taxation. Sweden’s new government accelerated privatizations of once-state owned businesses. It also permitted private providers to enter the healthcare market, thereby introducing competition into what had been one of the world’s most socialized medical systems. Industries such as taxis and trains were deregulated. State education and electricity monopolies were ended by the introduction of private competition. Even Swedish agricultural prices are now determined by the market. Finally, unemployment benefits were reformed so that the longer most people stayed on benefits, the less they received.

By 2010, Sweden’s public debt had fallen dramatically and its rate of economic growth was 5.5 percent. Compare that with America’s 2.7 percent growth in 2010, and just try to restrain your jealous impulses.

Gregg cautions that Sweden’s economy is still hampered the Social Democrats’ legacy. High minimum wages keep a full quarter of the country’s youth unemployed, and a carbon tithe to the religion of environmentalism retards growth, but

It’s surely paradoxical — and tragic — that a small Nordic country which remains a byword for its (at times obsessive) commitment to egalitarianism has proved far more willing than America to give economic liberty a chance.

Full article here.

Billionaire Democrat Ted Leonsis wrote a posting titled “Class Warfare – Yuck!” on his blog yesterday, in which he implored the president, to whose campaign he donated the maximum amount: “Hit a reset button ASAP. Rethink how to talk to businesses and sell business leaders on your plan to make America great! Many of us want to be a part of the solution. We aren’t the problem.”

Today, Charles Schwab published an opinion piece in the Wall Street Journal, and again the title says it all: “Every Job Requires an Entrepreneur.” If there is to be an economic recovery, he says,

The leaders of both parties, Republicans and Democrats alike, must lend their voices to encourage and support private enterprise, both for what it can do to turn our economy around and for the spirit of opportunity it represents.

These two men are individually responsible for the creation of hundreds of thousands of jobs because of the innovations they brought to the internet (AOL) and to stock brokerage (Charles Schwab Corp.). And their businesses have done more than employ lots of people; they have lowered the cost of internet access and financial services for millions of Americans. These men have done immense good for “less fortunate Americans,” and Ted Leonsis feels insulted by corporate jet demagoguery,

I own 50 hours on NetJets for the rare occasion I do travel by private plane. Does Air Force One charter out? Stop making private planes an issue. This is a tiny issue for us to deal with for our country.

Trying to shackle investment and entrepreneurial activity does the unemployed no good (nor our national debt). And no rhetorical strategy could be more opposed to the Christian principle of solidarity than the vilifying of successful entrepreneurs — the effects of such a strategy on public morality should be immediately obvious.

The corporate jet talking point is meant to stir envy in the hearts of listeners — it’s a trifling proposal that packs maximum rhetorical punch — and government by envy will get you nowhere.

The Manhattan Institute’s Proxy Monitor project is aimed at “shedding light on the influence of shareholder proposals on corporations.” It provides a thorough analysis of proposals made from 2008 – 2011 by activist investors — and believe it or not, only 35 percent of those proposals were related to corporate governance. Most of the shareholder proposals that these companies deal with are attempts to direct the company in a more green or pacific or fair direction, and they come from small shareholders who do this to dozens of companies.

A new report from Manhattan summarizes the trends — the growing social proposals, and how Dodd-Frank has playing into activists’ activities — and the proxy monitor website allows you to look at any shareholder proposal from the last few years. The proposals are enlightening. The Sisters of Mercy of the Americas have submitted proposals to the stockholders of Lockheed Martin and General Dynamics stating,

WHEREAS: Space has served as a sanctuary where, over the years, nations cooperate rather than confront one another. Satellites save lives…

RESOLVED: Shareholders request that, within six months of the annual meeting, the Board of Directors provide a comprehensive report on Lockheed Martin’s involvement in the space-based weapons program, at reasonable cost and omitting proprietary and classified information.

The well-meaning Sisters of St. Francis of Philadelphia, in a proposal to McDonald’s shareholders that made the news earlier this year, requested that,

WHEREAS,

The Affordable Care Act, signed into law on March 23, 2010, included federal menu-labeling legislation requiring the posting of calories on fast food menu boards….

RESOLVED: Shareholders ask the Board of Directors to issue a report, at reasonable expense and excluding proprietary information, within six months of the 2011 annual meeting, assessing the company’s policy responses to public concerns regarding linkages of fast food to childhood obesity, diet-related diseases and other impacts on children’s health.

Many other equally well-intentioned proposals have been filed, including repeated requests by the Sisters of Charity of St. Elizabeth that various pharmaceutical companies restrain their prices to “reasonable levels.” The Unitarian Universalists have requested that Pepsi Co. “create a comprehensive policy articulating our company’s respect for and commitment to the Human Right to Water.”

This is not to mention the numerous environmental proposals made by religious groups, requesting that the Rights of Humanity and of Mother Earth not be violated by carbon emissions and by the use of genetically engineered plants. Take, for instance, this statement from a proposal to Du Pont’s shareholders, concerning genetically engineered crops:

The right to food requires that we place the needs of the most marginalized groups, including in particular smallholders in developing countries, at the centre of our efforts

One might think the Sisters of Charity of St. Elizabeth were unaware that it has been the genetic improvement of crops that has saved millions of the world’s poor from starvation.

We’ll keep you posted on further developments, and the effects these proposals may have on companies’ performance.

As citizens await state decisions on new state EPA “fracking” regulations, many are worried radical environmentalist may compromise a promising opportunity in the development of gas reserves.

Natural gas advocates say radical environmentalists have long demonized the oil industry in their fight against free enterprise. Environmental groups claim fracking techniques to extract natural gas threatens the cleanliness of ground water, but their attacks contradict EPA studies that report there are no proven cases where fracking has contaminated water.

Extreme environmental groups have teamed up with some in the media to push their anti-growth agenda. A Heritage Foundation blog reports,

Environmentalists [...] have hijacked media outlets like The New York Times to run biased reports against fracking’s key contributions to America’s current and future energy supplies that would be a tremendous catalyst for the country’s economic recovery.

Though more EPA fracking studies are currently underway, environmentalist accusations contradict solid facts and studies. With almost any human activity, there will be some sort of environmental effect, but the benefits of shale drilling blows the costs out of the water. According to experts, a typical Marcellus Shale well can generate up to $4 million in economic benefits while only creating $14,000 in environmental damage.

If given the chance, the Independent Petroleum Association of America suggests the oil industry has the potential to lift our economy back on its feet again:

Petroleum powers the economy of this nation overall, evidenced by [a] strong correlation between states that have high petroleum use and high output. Petroleum is integral in our daily lives, not just as a fuel, but because it is present in common objects that are crucial to living a high-quality life.

But radical environmental groups often stand in the way. Some of these groups insist on “biological egalitarianism” in which all life forms are considered equal. An Acton publication titled A Biblical Perspective on Environmental Stewardship explains the dangerous connotation of this faulty environmental philosophy:

Instead, this philosophy negates the biblical affirmation of the human person’s unique role as steward and eliminates the very rationale for human care for creation. The quest for the humane treatment of beasts by lowering people to the level of animals leads only to the beastly treatment of humans.

Extreme environmental groups should remember the oil industry is not evil. They fail to see that their radical ideology is hurting the nation’s poor. Increasing oil production can fuel economic growth and provide jobs for the unemployed. To attack the oil industry in such a way is indirectly attacking human development. Cited in Ray Nothstine’s commentary on high gas prices and its impact on the poor are these words from John Paul II,

Besides the earth, man’s principle resource is man himself. His intelligence enables him to discover the earth’s productive potential and the many different ways in which human needs can be satisfied.

Of course, any human action has some effect on the environment; and so we have the responsibility to exercise environmental stewardship rather than prioritizing the fish in the Chesapeake Bay over the welfare of the human person.

News broke yesterday of an audacious violation of Apple Computer’s intellectual property rights (IPR) in China. This expat blogger posted photos of three sham Apple Stores she discovered in the city of Kunming—the stores have been set up by some entrepreneurial chap hoping to capitalize on the company’s Chinese popularity.

The story was slightly amusing, especially in light of Apple’s recent earnings announcement. (“They totally did it again,” said one analyst. It was also revealed that Apple now sits on enough cash in hand to buy 100% of Goldman Sachs at its current market value.) It seems that the Apple brand is now so valuable that the Chinese are counterfeiting the company’s retail outlets to sell Apple’s own products at full price. As one employee of the fake store said when reached by the Wall Street Journal,

It doesn’t make much of a difference for us whether we’re authorized or not. I just care that what I sell every day are authentic Apple products, and that our customers don’t come back to me to complain about the quality of the products.

But that’s precisely why Apple’s IPR must be protected. The company is one of the most innovative ever—their graphical user interface, popularization of the computer mouse, iPod music player, and touch-screen devices have dragged the technology sector forward, to say nothing of their design contributions—and that innovation would not have been supported without protections for the company’s intellectual property.

The U.S. Constitution justifies the establishment of IPR in giving Congress the power

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

As David H. Carey explains in his Acton monograph The Social Mortgage of Intellectual Property,

If allowing some techonology to be patented benefits society in the long run more than it costs society temporarily to forego unrestricted use of that technology, then such patents are morally defensible.

The Apple Store “experience” is tightly bound up with the company’s products (remember how miserably Dell stores failed?), and part of allowing Apple temporary exclusive use of its inventions is allowing it to sell them as it sees fit.

There is also the question of trademark, which exists primarily for the protection of consumers, so that when I buy a tube of Crest toothpaste from a CVS I know that I’m not getting a Chinese imitation accidentally laced with cyanide, stocked by a shyster posing as a reputable franchisee.

Whatever employees of these fake Apple Stores may say—and according to the blogger who broke the story, none of the stores’ sales force realized at the time that they weren’t working for Apple—it’s China! Would you buy an iPhone from one of the fake stores? The Chinese government has a responsibility to its citizens to enforce Apple’s trademarks and protect its citizens from fraud.

By pure coincidence, I can illustrate the importance of protecting IPR in China: Yesterday, about the time this story was hitting the internet, my father went to the Apple Store in Dallas (an authentic one) and purchased an iPad. While he is away for a week on a theology course, Apple’s device will give him access to email and other business tools, so that he can grow in virtue and keep his business running at the same time (and once they debut the iSpankings app, he’ll be able to keep his kids in line, too). He chose an iPad over any number of other devices because his IT guy—who doesn’t like Macs, as IT guys never do—told him it would do the job best.

Except for the U.S.’s protection of IPR, that market solution wouldn’t have been possible.

I usually feel sorry when I see the latest news about data compromise, hacks, or identity theft.  Though I feel for the victims, I also think about the individuals carrying out the act.  Society rightly looks down on such behavior, especially if the victims are everyday people.

What about when a high profile organization or government is hacked?  What if an organization of questionable reputation is targeted?  The online group Anonymous often aims at high profile targets with their hacks, DDoS attacks and other planned invasions.  By making the decision to compromise organizations, even questionable ones, Anonymous assumes responsibility for its actions.  Individuals that are a part of this online group hide their real identity to commit acts that are illegal.

Growing up, I believe most young people interested in computing are aware that there is a “wrong path.”  As in, property damage and theft are wrong.  This path includes learning how to break into different types of computer systems to seek information or modify a system’s behavior, typically for reasons advantageous to the hacker.  Anyone that is involved with technology knows this path exists.  Luckily, most of us are taught to respect others’ property, even if that property is digital.  What’s more, this activity undermines the rule of law and the ability of people to freely create wealth (see Acton’s Core Principles).

Computer programming is an important craft.  It’s simple to learn a little programming, but as you advance in skill the tasks become easier to perform.  Whether it is building a website, desktop computer application, or a small game, many people obtain enjoyment out of building unique and useful tools and products.  However, the same skills can be used to make an application that tricks people, steals their information or prevents their computer from functioning properly.  Individuals who make these keyloggers, trojans and worms typically do so out of greed or hate.

People break into computer networks or systems with malicious intent are called black hat hackers.  As you might expect, there are also white hat hackers.  White hats break into computer networks and systems too, but instead of taking advantage of the system’s weakness, they notify the owner of the system about the vulnerability so they may fix the problem.  Computer security is a classic case of good versus evil.  You might even call it one of those moral issues that are clearly black and white.

What stops black hats from becoming white hats?  Unfortunately, if there were no black hats there would also be no need for white hats.  Most white hats start out as black hats since learning the craft requires knowledge of breaking into systems.  White hats make a legitimate living through consulting and by working in organizations to ensure systems are secure.  They (hopefully) have a strong sense of right, especially if they start out as a white hat.

Even if you don’t know someone who works in computer security, it’s likely that your favorite IT person deals with security on a daily basis.  The IT professional that the white hat informs must secure their system against compromise, which requires knowledge of how hackers break in.  System owners are stewards of activity and information they manage.  They have the same access that hackers have to information stored in computers they work with.  Their job is to protect that information as well as ensuring its proper use within the system.

If the system administrator fails at their job, unsuspecting individuals using the system lose something.  It might be privacy, financial information, their own computer’s security or even their identity.  Black hats and hackers like the ones from Anonymous abuse gaps in security for their own amusement, personal reasons and notoriety.  They lack basic concepts of morality and are especially void of respect for any IT professional or individuals on the receiving end of their attack.