WorldCom blame game

Did a Republican "climate" or Democratic "tone" cause corporate malfeasance?


As concern over corporate fraud at companies like WorldCom and Enron grows, the race is on in Washington to assign political blame. The targets aren’t just the regulators and politicians who failed to prevent these debacles or the executives who deceived investors, however. Both Democrats and Republicans are now throwing around vague accusations that the other side created a “climate,” set a “tone,” or contributed to an “atmosphere” that allowed the crimes to happen.

These claims allow politicians and pundits to assign blame for the scandals without bothering to explain how, exactly, their political opponents are responsible. In short, it’s yet another cynical game of pinning blame on the other guy.

The Democratic attack was launched by House Minority Leader Dick Gephardt, D-Mo., in his weekly press conference on June 26, the day after WorldCom announced that it had improperly reported ordinary expenses as capital expenditures: “It is, I think, telling that in 1995, when the Republican leadership came in, both Newt Gingrich and Tom DeLay made statements that the main goal of their effort was to try to deregulate corporate America. Well, they did a lot of that in the last years, and now we see some of the results of that.”

But during the press conference and a later appearance on “Inside Politics,” in which he said that DeLay and Gingrich “contributed to the environment” in which corporate malfeasance has occurred, Gephardt offered little evidence to back up his assertions, saying to the press corps that “we are going to lay this out in detail for you” at some unspecified later date. He did say that Congress has “done things to affirmatively unwind regulations that should not have been unwound,” but his evidence was a vague list of those regulations — accounting, tax, corporate governance — and of blocked legislation. If Republicans stymied reforms that would have prevented recent scandals or supported reforms that caused them, Gephardt should say so specifically and offer clear supporting evidence.

Senate Majority Leader Tom Daschle, D-S.D., also offered lots of rhetoric and not much substance. In his press conference Friday, he criticized the “laissez-faire attitude” of the Bush administration, saying that it “helped create the kind of environment that exists today, an environment that … all that is required is self-policing.” He also said the Republicans in Congress “dismantled the regulatory environment that we had and in large measure created this sense of laissez-faire, of just total unwillingness on the part of enforcement or regulatory agencies to play a role. And I think that is the price we’re now paying for the difficulties that we’ve experienced.” According to the New York Times, he also pontificated about Republicans creating “a deregulatory, permissive atmosphere”: “It’s as if the line between right and wrong, legal and illegal, acceptable and unacceptable, was so little enforced that it became blurred.” Again, if there are specifics to be offered, Daschle should offer them. Isn’t the SEC responsible for most enforcement of securities law? Wasn’t it part of the Clinton administration until January 2001?

These accusations are being refined into overheated jargon — here’s the Associated Press yesterday on controversy over Bush’s sales of stock in Harken Energy Corp., which resulted in an SEC investigation: “Democratic National Committee spokeswoman Jennifer Palmieri called the 1989 transactions by Harken and Bush ‘very Enron-esque’ and said they were symbolic of how Bush and Vice President Dick Cheney, whose former employer Halliburton is also now under SEC investigation, had helped create a business climate ripe for accounting fraud.”

But few people even knew of the Harken case until this week. Had WorldCom executives researched the president’s business history and decided to take their inspiration from him? This argument by analogy is a cheap attempt to pin the blame on Bush. His past actions aren’t proof that his administration encouraged or allowed illegal accounting since he took office.

“Crossfire” co-host Paul Begala, however, was undeterred from setting up Bush’s Harken experience as part of a trend leading up to the recent scandals.

On Friday’s “Crossfire,” Republican consultant Ed Rogers made an obvious point, saying that “these bogus accounting practices … didn’t start on Inauguration Day, January 21st,” to which Begala replied, “No, Bush was doing it when he was in business, Ed.”

Note the logical flaws and unanswered questions in those arguments. How does a “climate” actually cause corporate executives to engage in wrongdoing? Aren’t changes in specific incentives — such as threats of prosecution, pressures to increase profits, and opportunities for personal gain from stock options — obviously more relevant than a “climate,” an “atmosphere,” or the alleged example of Bush? If Bush largely carried over the same policies that were in place under Clinton, how did this “climate” suddenly arise?

In response to all this, a number of Republicans have fought back by reversing the Democratic claims and suggesting that the “climate” of malfeasance was created by Clinton, blaming the former president for creating a “tone” of dishonesty that somehow led to fraudulent accounting, as Washington Post media critic Howard Kurtz and Joshua Micah Marshall have noted.

Radio host Rush Limbaugh, unsurprisingly, has again led the way. According to Kurtz, on Wednesday he said, “Who taught us how to get around laws? A, Ronald Reagan. B, Bill Clinton. Who taught us how to have his way with words and women? Who taught us, my friends, how to lie under oath and get away with it? Who taught us that oral sex isn’t sex, and now kids across the country in grade school try it out?” Limbaugh also pointed to the Whitewater scandal, saying that “the president of the United States got away with all kinds of things and inspired others to try [it] themselves.”

Former presidential candidate Steve Forbes pushed a similar argument on CNN’s “Moneyline” about “the tone of the ’90s,” which “started right at the top, at the White House, where the attitude was anything goes. If you get caught, spin your way out of it.” Republican strategist Rogers also claimed on Friday’s “Crossfire” that this corporate fraud “didn’t start when Bush was elected or when Bush was sworn in. It started during the Clinton bubble years, where we were all taught from the top down the truth is relative.” And the National Review’s Kate O’Beirne added her two cents on CNN’s “Capital Gang” Saturday, saying “that high ethical standards in high places was not exactly a feature of the ’90s, and that Bill Clinton — which is what the Republicans will be saying, of course — showed his own lack of respect for, for honesty.”

Finally, writing in the Sunday Times of London, Andrew Sullivan jumped into the fray: “In some ways, [these scandals] were deeply consonant with Bill Clinton’s cultural ethos. When the president of the United States acted as if the only ethical criterion that mattered was what he could get away with, it’s not entirely surprising that this attitude seeped outward into the general zeitgeist. I’m not saying Clinton was responsible for this corporate corruption — just that his administration was responsible for policing it and for setting the moral tone of the country.”

These attempts to link corporate dishonesty to Clinton are a variant of an evolving tactic of blaming him for dishonesty of all types, particularly by framing it under the aegis of “Clintonization.” On the August 24, 2001, “Hannity & Colmes,” Sean Hannity blamed Clinton in this way for Gary Condit’s apparent dishonesty in the Chandra Levy case. On August 31, 2001, Limbaugh even brought up 14-year-old Danny Almonte, who lied about his age in order to lead his team to a Little League World Series championship.

Many Democrats now believe corporate responsibility will be the issue that gives their party an edge in the 2002 congressional elections. Republicans fear they could be right. And so both sides are pushing these vague but powerful arguments about the other side’s creating a “tone” or “environment” that somehow encouraged corporate malfeasance. But don’t expect this gamesmanship to truly explain the roots of the recent accounting scandals or to provide solutions to the problems that caused them.

Brendan Nyhan is a political scientist currently serving as a RWJ Scholar in Health Policy Research at the University of Michigan.

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