Kid Gloves on Corporate Crime: A Different View

The following post takes off on Roy Poses' post on Health Care Renewal:
http://hcrenewal.blogspot.com/2011/07/case-of-bleeding-heart-prosecutors-how.html
--which in turn is heavily based on a New York Times account by Gretchen Morgenson and Louise Story:
http://www.nytimes.com/2011/07/08/business/in-shift-federal-prosecutors-are-lenient-as-companies-break-the-law.html


As I've demonstrated many times, Roy and I almost always have the same general take on an issue, albeit me more with a focus on Pharma and Roy on the corporatization of health care more generally. Here I find myself differing from Roy's analysis. So rather than simply appending a comment to his blogsite, I will take advantage of my own bully pulpit to make several points that seem to me pertinent.


First, the brief summary, though I recommend both of the above links to get the full picture. The U.S. Justice Dept. is said to be going soft on corporate wrongdoing, in terms of criminal prosecutions of corporate execs. They are increasingly using a tool called "deferred prosecution agreements," which advocates say gives them a bigger bang for the buck, getting companies to investigate themselves and to clean up their acts quicker than would be the case in a prolonged legal fight. Critics say that this is a form of mollycoddling white collar criminals and note that since the Great Recession, hardly any Wall Street execs have faced legal penalties.


Roy has for some time been harping on the need for CEOs to actually suffer consequences if the current wave of corporate wrongdoing is to stop. And he has a lot of ammunition in terms of the various corporate settlements we've reviewed here at nauseam, where a drug company can simply break the law so long as it has a blockbuster drug that brings in lots of cash--allowing it to set aside a big legal payout as simply a cost of doing business, after which it goes back on its merry, illegal way.


But I believe that Roy misses a deeper message in the NYT article. He says in his post that the new, softer policy was adopted by DOJ "for reasons that were not explained." But the real reasons seem to be staring us in the face in several places in the Times story. For instance:


Still, some lawyers applaud the closer relationship between the government and business. “Given the scanty resources that have been committed to corporate crime enforcement, I think the government’s leveraging of its prosecution power from corporations and their lawyers has been critically important,” said Daniel C. Richman, professor of law at Columbia and a former assistant United States attorney in New York.

But Professor Richman added that the government should have “a much more developed, funded and empowered S.E.C., Federal Reserve, E.P.A. and other agencies to do regulation, to do enforcement and feed cases where necessary to criminal prosecutors.”


Here, I think, is the answer. We've just had more then three decades of so-called leadership where Republicans and Democrats have vied with each other in their eagerness to "shrink big government." Just as we've seen here before that the FDA doesn't have enough inspectors to be sure that drug ingredients imported from China are safe, the Feds apparently lack the investigators to police corporate wrongdoing. The "deferred prosecution agreements" essentially outsource the Federal investigation--the company has to hire a big law firm to find out what it did wrong and then come up with a supposed promise-to-be-good-in-the-future plan. And as the critics note, the corporation is much more likely to resort of this strategy, and to be frank about what the problem is, when some underlings can he hung out to dry, and not when the criminality resides in the executive suite. But what can DOJ or SEC do when they simply have to few trained staff to run their own investigations, with real teeth?

This leads to an announcement I hope to be able to make soon about a new book that I have been working on for some time. It's about US policy, and not about pharmaceuticals, so I plan to take little space here to talk about it. But I have been spending time studying the origins and nature of a belief system that I think is most appropriately called economism. Economism is the belief in the all-powerful "free market," and the prescription that every problem in human life can be solved through the market, and that the only appropriate role of government in the market is to get out of the way and let it be "free." But economism is internally self-contradictory and so always ends up talking out of both sides of its mouth. In the case of "big government," economism desires half-powerful and half-powerless government. The powerless half is the part that could stand in the way of corporate profits--like too many DOJ or SEC investigators. But economism simultaneously desires all-powerful government when it comes to those aspects of government that can be tied to its own pursuit of wealth, and can secure monopoly privileges for those corporations now at the top of the heap. So, for example, making sure that Pharma continues to get huge tax breaks, and that the US government remains vigilant to protect its "intellectual property" so that no Indian generic firm can make AIDS drugs to sell in Africa at an affordable price, is a type of "big government" you never hear economism's boosters objecting to.

So, if I could wave my magic wand and make the corporations and the wealthy pay their fair share of taxes, and then we'd have enough government gumshoes to bring the corporate wrongdoers to justice, would I then be in favor of unleashing them mercilessly on the industry? Well, not exactly, which is my next-to-last point for this overly long post. I was quite persuaded when I wrote HOOKED by the Australian sociologist, John Braithewaite, who back in 1984 wrote an interesting and prescient book, Corporate Crime in the Pharmaceutical Industry. Braithewaite was an advocate of turning where possible to a cooperative rather than a big-stick approach to corporate wrongdoing, arguing that each corporation contains within it people who want to see the right thing done, that those folks are often better placed as insiders to see what is really going on, and that finding ways to form alliances with those people might actually pay off better in the long run in terms of responsible corporate behavior and safe and effective drugs. Braithewaite was a firm believer that sometimes you had to hit the proverbial mule over the head with the 2x4 to get its attention, and so he argued that focused prosecutions were a very good tool to use along the way. But he also argued that a policy simply of "throw the rascals in jail" was not the way to get what we want either. So I can see an argument for some balance here despite the fact that the situation as described by Morgenson and Story sounds way out of kilter on the mollycoddling side.

Final point: back to economism again. One of the main tools for economism's advocates in the last three decades or so has been the concept of "moral hazard." According to this so-called economic theory, you should never help the poor, because if you help them you reward their behavior, and that makes them just do whatever made them poor in the first place more often. But again economism talks out of both sides of its mouth, and here proves a point wittily made some time back by J.K. Galbraith: "The poor don't work hard enough because they're paid too much, and the rich don't work hard enough because they're not paid enough." (Quote courtesy Steve Keene, Debunking Economics, Zed Books, 2001.) In other words, so long as we are talking about the poor, then "moral hazard" is a universal law of human pychology, but economism changes its tune abruptly when we are talking about the rich. If the poor commit a crime, we lock them up for life under a 3-strikes law. But if the rich commit a crime, then we talk about deferred prosecution agreements.