Open Market

Mixed Signals from the Grand Canyon State

Arizona voters have provided us with another positive development coming out of the midterm election - reform of eminent domain abuse, which passed by a 2-to-1 margin. Unfortunately, they also approved a smoking ban and a minimum wage increase.

Video on the minimum wage, courtesy of Bureaucrash:

--Richard Morrison

Two Victories for Taxpayers

Yesterday, taxpayers celebrated two big victories at the ballot box.

Nevada voters removed a controversial state supreme court justice, Nancy Becker, who joined in the much-reviled Guinn v. Legislature decision. That ruling held that Nevada lawmakers could ignore a state constitutional requirement for a two-thirds majority and hike taxes by a simple majority vote. (The court felt that increasing taxes would make it easier to increase funding of the state’s educational system, although additional funds for education could have been freed up by cutting other state spending).  As a result of the ruling, the state legislature raised taxes by $833 million.

Becker was defeated by a trial judge, Nancy Saitta, who was critical of that ruling. Saitta also criticized Becker for ruling that the City of Las   Vegas could seize the Pappas family’s property and give it to gambling moguls to use as a parking garage.

Becker’s defeat is a victory for the Las Vegas Review-Journal, a consistent voice for Nevada’s taxpayers, which educated the public about Becker’s role in imposing tax increases on the public.

In Michigan, voters overwhelmingly approved Proposal 2, a measure to end race and gender-based affirmative action in state college admissions, public employment, and government contracts. Proposal 2 will save taxpayers money by ensuring that municipal contracts are awarded to the lowest bidder, rather than based on affirmative action.

It will also end the University of Michigan’s longstanding practice of discriminating against whites and Asians in admissions. Proposal 2 is modeled on California's Proposition 209, an anti-affirmative action initiative passed by California voters in 1996.

The passage of Proposal 2 is striking, because it was opposed by all the political elites.  Both gubernatorial candidates opposed it. One left-wing minister called it the work of the “devil,” while a corporate lobbyist claimed it would mean “lights out” in Michigan.

Proposal 2’s principal spokeswoman, Jennifer Gratz, was subjected to an endless campaign of personal vilification in Detroit’s major newspapers, the Free Press and the Detroit News, which repeatedly denounced Proposal 2.  A radical militant group, By Any Means Necessary (BAMN), physically menaced supporters of Proposal 2 and disrupted meetings designed to put Proposal 2 on the ballot.

The passage of Proposal 2 is a win for state taxpayers and a defeat for the politics of intimidation and fear.

--Hans Bader

Schumer’s Sarbanes-Oxley Surprise and Frank’s Frankness

One of this election’s "October Surprises" may have come on Nov. 1, when Chuck Schumer, Democratic Senator from New York and chairman of the Democratic Senatorial Campaign Committee, declared in a Wall Street Journal op-ed (available by subscription to WSJ) that the Sarbanes-Oxley corporate accounting law "needs to be reexamined." Schumer and the op-ed’s co-author, New York Mayor Michael Bloomberg, wrote that "auditing expenses for companies doing business in the U.S. have grown far beyond anything Congress had anticipated" and that "there appears to be a worrisome trend of corporate leaders focusing inordinate time on compliance minutiae rather than innovative strategies for growth." This criticism is similar to what CEI has been saying practically since the law went into effect.

Schumer joins House Minority Leader Nancy Pelosi in appearing to be open to substantial reform of Sarbanes-Oxley. These Democrats have outflanked many Republicans, at least in their rhetoric, on Sarbanes-Oxley reform, due to Republican cowardice and stupidity. In so doing, they have moved the debate forward

But free-market corporate governance expert Larry Ribstein is rightly skeptical as to whether these politicians’ rhetoric will match their reality. He notes on his blog that Schumer "was one of the key proponents of a strict version of SOX." In fact, at a heaing earlier this year, Schumer bemoaned the fact that foreign companies weren’t listing here because they were supposedly shirking American corporate governance standards.

And this is the crux of the new call for Sarbox reform, London’s taking business away from U.S. stock exchanges. Ribstein notes that "jurisdictional competion … can chasten even the most pro-regulatory forces."

But not all Democrats are having Schumer’s reaction. Barney Frank, who is slated to be chairman of the House Financial Services Committee should Democrats take the House, still maintains that no legislative changes are necessary. And his solution for global competition: a global financial regulator, he recently told the Financial Times

This why everyone should differing global regulatory regimes not as a problem, but sometimes the only thing that forces a good solution to regulatory monstrosities.

--John Berlau

Empowering Green Bureaucrats

This morning, CEI co-hosted the conference, “Empowering Green Bureaucrats: How Global Environmental Treaties Threaten National Sovereignty and Hurt the World’s Poor,” with Universidad Francisco Marroquín in Guatemala. The conference, held on the eve of the start of the Mont Pelerin Society meeting, hosted by UFM in Guatemala City. Speakers explored the ways in which multilateral environmental treaties are utilized by advocates of greater political control of economic activities to do an end run around nations’ governing institutions. A special highlight was the luncheon talk by Barun Mitra, of India's Liberty Institute, in which he detailed his work on species conservation for the tiger in China. The conference was videotaped and will soon be available online.

– Ivan Osorio

America Works

Jeff Wrase at the Joint Economic Committee emails this morning with good news - the lowest levels of unemployment in over five years. The Bureau of Labor Statistics report out today on jobs finds that the U.S. economy has dropped to an extremely low 4.4% unemployment rate, and that employers have created 157,000 new payroll jobs per month over the last three months.

As it turns out, both France and Germany are also celebrating declining jobless numbers this week. Those progressive European nations with their generous social welfare benefits are down to unemployment figures of 8.8% and 9.8%, respectively.

--Richard Morrison

The Quality of Labor and the Wealth of Nations

A friend has pointed me towards this Tyler Cowen NY Times op-ed about what really drives the wealth of nations:

“Gregory Clark, an economics professor at the University of California, Davis, identifies the quality of labor as the fundamental factor behind economic growth. Poor labor quality discourages capital from flowing into a country, which means that poverty persists. Good institutions never have a chance to develop.

Professor Clark argues that as late as the 18th century, most Europeans had not exceeded the standard of living in hunter-gatherer societies. Until recent times, the early advantages of Europe did not allow it to escape what economists call the Malthusian trap, in which rising populations periodically offset temporary gains in living standards.

The turning point came when England, and some other parts of Europe, managed a small but persistently positive rate of growth, starting around the 17th century.”

Clark has previously examined the “quality” of Indian labor vs. British labor and has argued “that India's backwardness is due in large part to the inability to employ technology, and not to an inadequate diffusion of technology per se.” Clark and his co-author speculate that “in productive economies, workers exert more effort in the workplace than can be justified purely by monitoring or by direct financial incentives because they expect everyone else to act in that manner. India, the authors argue, is characterized by a mutual-shirking equilibrium, rather than a mutual gift-giving equilibrium. In this view, India's poverty is largely unconnected to government policy or public institutions.”

--Isaac Post

The UK Takes An Alarmingly Stern Look at Global Warming

The international media is in a tizz this morning (afternoon in the UK) over the release of the Stern Review on the Economics of Climate Change. The British government commissioned advisor Sir Nicholas Stern to assess the economic impact of global warming and boy, did they get their money's worth. According to his projections, disruptions from a changing climate could end up consuming as much as 20% of global GDP. That's serious.

Except that maybe it's not. We sent out a statement earlier today on the Review, and in it, Myron has this to say:

The report’s estimates for reducing greenhouse gas emissions are laughably rosy, while the assumptions about the impacts of global warming are ridiculously overblown. The Stern Review may look professionally done, but it doesn't pass the laugh test.

In other words, be extremely skeptical of the British government’s official position on the future impacts of global climate change.

Broadcast media note: Global TV viewers will be able to catch Myron on BBC TV 4 tonight at 20:00 GMT and Marlo sometime tonight on Sky News. And for the first time, Myron will also be a news guest on Al Jazeera, to be filmed shortly on the sidewalk in front of Open Market world headquarters here in D.C.

--Richard Morrison

Bean Counters Caucus in DC

The American Financial Services Association is holding its 90th annual meeting here in Washington this week, and attendees are tackling a number of challenges including the threat of identity theft to customers, the multiple levels of regulatory control over member companies and calls for the industry to "do good" in addition to doing good business.

A lot of these are issues CEI has worked on as well. For more, see Wayne and Brooke's paper on identity theft, Wayne's latest installment of 10,000 Commandments on regulatory overkill, Isaac's take on "corporate social responsibility" and business do-gooders, and John's work on financial regulation in general at the Center for Entrepreneurship.

One particualr highlight for those attending the conference today - our friend Walter Williams will be giving the lunch keynote address "The Role of Government in a Free Society." I assume it'll be the shortest speech of the week.

--Richard Morrison

Vietnam Set for WTO Membership

Vietnam passed a final hurdle in its quest for membership in the World Trade Organization. According to the WTO, the “finishing touches to Vietnam’s membership package” are complete, and the documents now go before the General Council, scheduled to meet November 7 for the vote.

Vietnam’s accession would bring the WTO membership to 150 member countries.

On May 31, 2006, the U.S. and Vietnam signed a bilateral market access agreement that was needed as a critical step on Vietnam’s road to WTO accession. The President this summer submitted the agreement to Congress, which now has to consider legislation to grant Vietnam permanent normal trade relations.

The outcome is still a bit murky. Some U.S. politicians from textile and garment areas were bashing the agreement until President Bush assured them that the U.S. may take antidumping action against Vietnam in the clothing area.  Retailers, who see themselves paying higher duties (and raising the prices for consumers), don’t want that to happen.

In early October, the European Union slapped custom duties on leather shoes imported from China and Vietnam.

- Fran Smith

Bush and Pelosi up the Ante for Sarbanes-Oxley Reform

Republicans have long been accused of being the party of Wall Street, a campaign charge that’s again being leveled in this election. But on the issue of Sarbanes-Oxley, the Elephants have moved very slowly for fear of being allied with big business and the corporate scandals that prompted the 2002 law, which was largely crafted by the then-Democratic-controlled U.S. Senate.

The irony of Republican inaction is that it has given leading Democrats the opportunity to outflank the GOP in advocating regulatory relief on this issue, one that’s vital for entrepreneurs. Democrats may have been vague on solutions, but they have gone further than leading Republicans who’ve hardly acknowledged that there was a problem. Earlier this year, when the House Democrats’ “Innovation Agenda,” introduced by House Minority Leader Nancy Pelosi, promised legislation to “ensure Sarbanes-Oxley requirements are not overly burdensome” for small public companies, CEI praised the passage in a press release. I noted in this space that “[w]hile modest, this is further than most Republicans have been willing to go.”

Since then, about 20 House Republicans, 10 Senate Republicans, and one House Democrat have signed on to a bill to scale back some of Sarbanes-Oxley’s most onerous provisions. But many leading Republicans, from retiring House Financial Services Committee chairman Mike Oxley to Securities and Exchange Commission Chairman Chris Cox, still have maintained that no legislative changes are necessary. The Bush Justice Department even weighed in against the lawsuit that CEI launched with the Free Enterprise Fund on behalf of small-business accountant Brad Beckstead to challenge Sarbanes-Oxley’s Public Company Accounting Oversight Board.

Some interesting things happened this week. On Monday, in an interview on CNBC, President Bush finally addressed some of Sarbanes-Oxley’s burdens and said some things should be changed. But a day later, on the same network, Pelosi went further still on Sarbox reform.

Bush told interviewer Maria Bartiromo that he wanted to “live within the spirit of Sarbanes-Oxley but make sure that we don’t overregulate here in America.” But when Bartiromo asked if he thought the law should be scaled back, he argued that it should be “fine tuned” but not “rolled back.”

But on Tuesday, in an interview with CNBC’s free-market pundit Larry Kudlow, Pelosi essentially said that some sections of the law should be rolled back. After saying that, “everything that we do should be to encourage the markets, not to discourage them,” she spoke of Sarbanes-Oxley’s “unintended consequences.”  Then, explaining what needed to be done about the law, Pelosi said: “You need the transparency. You need the focus on it. But you don’t need—I don’t think you need the whole package.”

I don’t think you need the whole package. Wow! It sounds like she’s saying she’s open to parts of the Sarbanes-Oxley package being repealed. And this time, she is saying that rules should be eased for all public companies, not just the smaller ones.

We know, of course, with all politicians, that words are often different from deeds. Some parts of Pelosi’s party’s constituency oppose any rolling back of Sarbox.

But Pelosi deserves credit, again, for moving the Sarbanes-Oxley debate forward from how to tinker here and there to what parts of the law need to go. CEI will soon have a paper for all interested policy makers that details which Sarbox provisions are the most destructive parts of “the package”: The required audits of the broadly defined “internal controls” in Section 404, of course, but also sections like the rules governing boards of directors that discourage many of the most qualified experts from serving on the audit committees of corporate boards. Look for the paper on CEI’s site in the next few weeks.

- John Berlau