Economics

انحطاط سيارة الشعب

Sep 26, 2015 Harold James

برينستون ــ حتى الآن، توالت فصول فضيحة فولكس فاجن وفقاً لسيناريو مبتذل. فأولا، تخرج علينا تصريحات تكشف عن سلوكيات مشينة على مستوى الشركة (في هذه الحالة، إقدام شركة صناعة السيارات الألمانية على برمجة 11 مليون مركبة تعمل بوقود الديزل بحيث لا تعمل أنظمة مراقبة التلوث في محركاتها إلا عندما تخضع لفحص الانبعاثات). ثم يعتذر المسؤولون التنفيذيون، ويفقد البعض وظائفهم، ويَعِد خلفاؤهم بتغير الثقافة الشركاتية. وتستعد الحكومات لفرض غرامات ضخمة. وتستمر الحياة.

الواقع أن هذا السيناريو أصبح مألوفا، وخاصة منذ الأزمة المالية عام 2008. فقد أعادت تمثيله البنوك وغيرها من المؤسسات المالية بشكل متكرر، حتى مع استمرار الفضائح المتتالية في تقويض الثقة في الصناعة بأسرها. وينبغي لهذه الحالات، جنباً إلى جنب مع خدعة "الديزل النظيف" التي دبرتها فولكس فاجن، أن تعطينا سبباً وجيهاً لإعادة النظر في النهج الذي نسلكه في التعامل مع جرائم الشركات.

من الواضح أن الوعود بتحسين السلوكيات ليست كافية، كما أثبتت الأعداد التي تبدو بلا نهاية من الفضائح في القطاع المالي. فبمجرد انتهاء الهيئات التنظيمية من التعامل مع حالة من التلاعب بالسوق، تظهر حالة أخرى.

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Harold James

Writing for PS since 2001
215 Commentaries

Harold James is Professor of History and International Affairs at Princeton University. A specialist on German economic history and on globalization, he is a co-author of The Euro and The Battle of Ideas, and the author of The Creation and Destruction of Value: The Globalization Cycle, Krupp: A History of the Legendary German Firm, Making the European Monetary Union, and The War of Words.

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Paul Daley Sep 30, 2015

Governments would seem to need some means to take companies hostage in the case of major infractions, perhaps by calling in their charters for review and revision and possible revocation. Nothing really focuses the mind like the threat of annihilation.
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Barry Rosenfeld Sep 29, 2015

How many times did HSBC pay a fine, avoid acknowledging worng doing, and receive "deferred prosecution. One should be so lucky. How many miscreants avoided jail time, not only in banking and mortgage finance, but also in the auto industry - the GM case and the case of faulty air bags - and the BP oil spill in the Gulf of Mexico. The outrages will continue until corporate leaders see the inside of penal institutions. Don't hold your breath.
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Manu Oquendo Sep 28, 2015

Excessive regulation and too much gvt direction are killing the system.
The day we really want to do something we will have to hide or go to the end of the Galaxy. This planet already suffers from obsessive scrutiny by intrusive Governments.

10,000 years ago the sea was 120 meters below current levels. Every day the ruins of newly discovered underwater cities appear in every country. From Japan to Crete, from Cadiz to the Donegal Islands.

This means that, on average, sea level has been rising at 1.2 cms per year since the recorded end of last glacial era.
Exactly the same as today.

We are very cynical if we pretend that in the VW Management Board there is anybody unaware of what was going on.

In any avent I appreciate the work of Harold James.
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Diego Orlandi Sep 28, 2015

"Banks are also uniquely vulnerable to scandal because many of their employees are simultaneously behaving in ways that could influence the reputation, and even the balance sheet, of the entire firm." isn't this exactly the quality which differentiates corporative from "humane" business practice? shouldn't all professional jobs require individual decisional powers?
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Stephen Stanley Sep 28, 2015

A few perp walks would be nice. If these guys can get paid millions to run the company, they should be responsible for its actions. The Reverse Nuremburg defense, I can't be held responsible because I was just acting on the information my subordinates gave me, can't be allowed to hold. Prosecute a few of these clowns and we'll start to see more responsibility.
- Alan Yang Sep 28, 2015
  
  It will have to be much more than a few perps... Provably need at least a few dozen, or few hundred at VW alone to send the proper measage. Anyone who had enough knowledge of the cheating sodtware to be able to realize that this software would help VW vehicles to skirt regulations and cheat the emmissions test is either culpable for for this criminal deception or complicit via their silence. This investigation and punishement should involve everyone who advocated that VW skirt the regulation, to anyone involved in proposing various methods to skirt the regulations, and to anyone who was involved in the actual design, testing and deployment if rhe cheating software and who could be in a position to understand the significance of the software they developed. (I.e.... Individua programmers might not understand the significance of the section of the software that they develop, but there is usually a project manager or program manager who would is would understand the how the different sections of software are supposed to operate together tonproduce the desires outcome; although he /she might be quite low on the management heirarchy, his/her silence at minimum complicit in this fiasco).
  
  Bad people are only primarily concerned about benefits / self-inters for themselves or of the group of people they associate with. Hence you cannot incentivize these people to do good behaviour, since they could probably get more benefits if they cheat your system. They will use clever deception, as in VW case, or they work to undermine regulations (i.e. The piecemeal repeal of glass-stegal) , or the weaken the monitoring and enforcement of those regulations. i.e the revolving door of career opportunites between regulators and the regulated i.e. The SEC. Only effective monitoring, enforcement, removal and punishment of individuals might deter others from attempting to cheat the intent and purpose of the system.
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Dirk Faegre Sep 28, 2015

I recall back in the 1950's (as a child) that appliance manufacturers were found guilty of price-fixing (Hotpoint comes to mind). Some high level execs were sent to jail and we've seen little price-fixing in that sector since. My point is that white collars are terrified of jail and it's long tail on their personal history. For the homeless, jail is a dry bed and decent meal. For white collars ... it works!! Why are we so afraid to jail them? It will provide instant results across the board, guaranteed.
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Procyon Mukherjee Sep 28, 2015

Character is bigger than success, but when the spirits of winning takes over the spirits of conscience, one would be left with a desire to manipulate, almost at any cost.

"Phishing for fools", is replete with examples and there are more as the VW saga unfolds. This world never leaves the opportunity unattended where an extra profit is to be made, fair or unfair, who will tell?
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Edward Mills Sep 28, 2015

I have a fierce quarrel with Professor James' references to the banking industry. I have been shocked at the intellectual bankruptcy of the academic community- especially those at Princeton - when it comes to the forces that drove the housing crisis.
In 2007 the national organization representing over 600 local and regional housing activists posted on its website a 63 page report detailing 446 "agreements" activists "negotiated" (Sen. Phil Gramm in 1999 labeled the "agreements" as "extortion") with banks totaling $4.56 trillion of minority lending commitments. $4.5 trillion of that amount was "negotiated" after 1994. Prohibitions against interstate banking were removed in 1994 - BUT only on condition that banks proved to the satisfaction of regulators and housing activist interveners that they were making a "satisfactory" amount of loans for inner-city redevelopment and revitalization, including subprime mortgages.
46 of the 63 page report, "CRA Commitments" - which can be found on the website ncrc.org - describe demands in addition to the $4.56 trillion of regulatory commitments. These demands essentially required banks to write no-documentation, no-down payment and no-or-low closing costs.
Moreover, in 1991 ACORN staged a 2-day sit-in of the House Banking Committee which then deputized ACORN to draft what became known as the Government Sponsored Enterprises Act of 1992 which required Fannie and Freddie to devote 30 percent of their business to subprime mortgages. In addition, the act made HUD Fannie's and Freddie's "Mission Regulator." Under President Clinton Fannie's and Freddie's subprime "mission" was boosted to 50 percent with a minimum ten-year target of $2.4 trillion.
Yet, with the exception of the book, "Fragile by Design" academics, including Professors Krugman, Blinder and former Professor Bernanke display absolutely no awareness of the $4.56 trillion of government sponsored "CRA Commitments" or the impact of the Government Sponsored Enterprises Act of 1992 which had as one objective the creation of a s subprime mortgage market.
While the Volkswagen incident is extreme it should not be used as the basis for judging business behavior generally.
In studied economics B.C. (Before Computers) and one of my professors taught that government sets the rules of the game and businesses generally play by those rules but, yes, where rules are excessively restrictive, such as the prohibition against interstate banking, private enterprise will seek ways to end-run the rules. And if government applies brutal pressures on the banking system to finance the redevelopment and revitalization of decaying inner-cities and the demands made upon the banks hugely exceeds their resources then the development of a subprime market should not come as a surprise to anyone except a Princeton economics professor.
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Robert Winter Sep 28, 2015

Professor James merely touches upon the very substantial changes that would have to be made to impact the present system where the basic problem is that there is no, or only modest, personal responsibility for senior executives or directors for even egregious acts of corporations that would be fairly viewed as criminal. Unless you confront that issue, nothing will change because the financial incentives are simply too great. And, to change the system -- at least in the US -- is not simply a matter of changes in regulation but also of in corporate law (a matter generally for the states) where there has been a race to the bottom to induce corporations to locate in states that make it the most difficult to hold individuals responsible.
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Wil Starr Sep 28, 2015

Yes, we all expect the auto corporations to skirt the edges. Actually I live in an area that challenges mpg, and my average mpg exceeds what the manufacturers specified. And you can't detect emissions just by smelling car exhaust. We expect car companies to inflate their claims a little bit, but we don't actually expect them to cheat. What is interesting here is that there is so much more anxiety --on the part of the government, the financial sector and the public-- to restore the reputation of a venerable automobile manufacturer than there is to restore the reputation of a venerable bank. When it comes to the banks, evidently we really DO expect lying and cheating and irresponsibility to the point of outright theft. All in a day's work. But when it comes to cars, that's serious. There must be billions, not millions, in fines. The governments must be stern. Cars matter. They are cultural bedrock, for Americans and for Germans. Banks we can let off with little fines and empty promises.
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axel sohn Sep 27, 2015

They could start by creating a national banking system, and also nationalize some of the most predatory of the banks- Goldman Sachs, JP Morgan Chase, etc.
to surgically remove the political power of those entities that has been used facilitate the enumerated abuses. There is no reason why a nationalized system could not run as efficiently as the oligopoly that is currently in place.
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William Pu Sep 27, 2015

Criminals who commit white collar crimes usually get away with murder. Sometimes literally. GM is a recent example. Will VW executives face criminal charges even though pollutions do cause deaths?

Change corporate culture?

Corporations all have only one culture - make more money but do calculate the cost of penalties into the equation. What's the cost of a life? A few millions?
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Per Kurowski Sep 27, 2015

“how to craft regulations that provide the proper incentives to achieve the objectives we truly desire:”

Defining the objectives is a must. In all current bank regulations, except for that of not failing, there is not a single word about the purpose of banks, such as that of allocating bank credit efficiently to the economy. To regulate something without defining its purpose is as loony as it gets.

http://subprimeregulations.blogspot.com/2011/10/if-only-those-of-occupy-wall-street.html
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John O'Donnell Sep 27, 2015

Professor James calls for "a sustained discussion about how to craft regulations that provide the proper incentives to achieve the objectives we truly desire." So civilized. I would rather suggest a punitive structure of disincentives: stiff criminal penalties including long periods of incarceration for individuals who run the banks and corporations that have run roughshod over our "commercial democracy" since at least the Guilded Age. So long as we legally define a corporation as a "person," we're punishing the metaphorical car for killing pedestrians on sidewalks instead of arresting the drunken drivers. --John O'D
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Richard Solomon Sep 27, 2015

Until social wellbeing is considered to be as important as economic gains these scandals will continue to happen. That will require that citizens have an equal voice in governmental policy and decision making. When/how will the politicians become as beholden to their citizens as they are to their corporate benefactors? When money stops driving government.
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jorma saloniemi Sep 27, 2015

It is waterclear that Volkswagen manipulated numbers concerning its cars' emissions. So what? Do we really think that amount of emissions of given car are correct? All depends on how you drive, where you drive and how fast you drive and in what kind of weather you drive. The numbers informed are correct only under ideal surroundings. I could bet that gas emissions informed by producer of any car are not correct in real life. Volkswagen is good news for US car industry. The paradox here is that Volkswagen is good, enduring car.

The mistake of Volkswagen administration was that in 2007 it was informed about the manipulation of emissions numbers. But the administration didn't anything to turn the course.
- Alan Yang Sep 28, 2015
  
  This is not a case excessivley positve interpretation of data, such as during optimal driving condition. In VW case, they installed software to activate the emissions control equipment only when the vehicle went through emissions tests as when done in a typical car repair shop. Hence, when the vehicle was actually driven on the road, and directly monitored via tailpipe emissions, the test showed that the vehicles were emitting far more pollutants than what was legal.
  
  VW cheated to pass the emission test and then lied to its customers and regulators. Period.
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Gunnar Eriksson Sep 26, 2015

A paradigm change is needed! The interest and short term profit for the 1 % is the only important goal and the damage an action causes to the 99 % is of no concern basically.
Money must be cleaned out of politics and media need a complete shift in focus.
In the particular case of vehicle compliance; the competent authorities should perform random fuel consumption and emission tests as in use testing and publish the results in a global database so we can all see who deviate the most from the intent of the regulation.
- Robbie Jena Sep 26, 2015
  
  Thank you. We have been trying to shift the Paradigm since 1984. Simply because one cannot be in the same team and do Paradigm Shift. One has to be outside like the group that helped China where it is now. Sad but true.
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Robbie Jena Sep 26, 2015

In USA, the Republicans do not believe in Climate Change. So, if that was the case in Germany, they did not care...that is the Bottom Line.
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Tom Nowicki Sep 26, 2015

I think it is a mistake to conflate this case with the financial crisis. What we have here is a clear case of criminal fraud with far reaching deadly consequences. I will let some one else estimate the number of deaths related to the pollution they caused but the impact is surely there.
As for the financial crisis it was by and large a mix of greed, stupidity and lax regulations. A totally different kettle of fish.
- m r Sep 27, 2015
  
  "Criminal fraud" is a bit too strong; as Regulators in VW's case cannot plead that they did not have the authority or reason to look through the software, which seems manipulated.
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Gerard Cats Sep 26, 2015

The Netherlands organisation TNO already in 2013 knew of the existence of this murderous software module. They reported on it in https://www.tno.nl/media/1969/investigations_emission_factors_euro_6_ld_vehicles_tno_2013.pdf. The text is in Dutch. I translate:

The control strategy is such that the EGR and SCR systems during the type approval test are functional , but under field conditions for economic reasons ( partly) are disabled.
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Walter Gingery Sep 26, 2015

We'll continue to have such problems so long as we start the discussion with "the invisible hand," the idea that men and women automatically serve the public interest as they strive to pursue their own interests.

Adam Smith's ideas must be reexamined.

It is still possible, moreover, to hear in some Republican and libertarian quarters, advocates for abolishing all government regulation whatsoever.

Such views can now be set aside as merely quaint holdovers from the dupes of the corporate interests.
- Monroe Morgret Sep 28, 2015
  
  Wasn't Adam Smith suspicious of corporations, believing they obstructed the efficient working of the invisible hand?
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- Alan Kirman Sep 27, 2015
  
  This is precisely the source of the problem. THe myth that the invisible hand will achieve the socially efficient outcome is so embedded that those who question it are regarded as slightly weird. However, when one thinks of the vast regulatory systems that we put in place to offset all the efforts that individuals and firms make to follow a path which is far from socially desirable we should think again about the comfortable reliance on society self organising in a satisfactory way.
  THe first step to getting to a better state is to recognise that all the incentives are there for individuals to go in other directions.
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