THEY WILL DO WHATEVER THE LAW ALLOWS; or, DON’T HATE THE PLAYER, CHANGE THE GAME

by Jeff Strabone

Chesterfield-reagan Recent catastrophic events have brought renewed attention to the relationship between government and business in the United States. Over the thirty years since Ronald Reagan’s election as U.S. President, the great ideological project of our era has been the narrowing of options in matters of political economy, and their replacement by the mantra that government is bad and all that it does is a restriction of freedom. The most fanatical equate the individual’s freedom to wield his money and property as he will with the freedoms protected by the First Amendment, as if the spending of money were up there with religion, speech, press, assembly, and petition. This movement has reached its apogee, so far, in the government’s refusal to regulate derivatives in the Commodity Futures Modernization Act of 2000, in the 2010 Supreme Court case of Citizens United v. Federal Election Commission, and in the unregulated hand wielded by BP and others in their deepwater drilling operations in the Gulf of Mexico. It is high time for the sun to set on that right-wing dream. Now is the time for a new morning in America, one where we all understand government’s proper role in the market.

Before we can get to that new ideological moment, we will have to see clearly the misunderstandings that the Reagan-era narrowing has yielded. In previous articles for 3QD, I have talked about the futility of lamenting that corporations ‘just don’t get it’. This is the sort of phrase one hears from those who mistakenly think that corporations can be shamed into humanitarian behavior. The more worthwhile consideration, shame being institutionally impossible, is how we can make corporations behave in more tolerable ways that don’t lead to economic collapses and ecological disasters. The problem and the solution are the same and can be summed up in one word: law. The thing we must recognize about corporations is that they will do whatever the law allows. It sounds so simple, yet the implications are vast.

It’s not unusual for corporate CEO’s to testify at Congressional hearings and occasionally to be grilled by the members. What may be different about the 111th Congress is the frequency and anger of the grilling. While there has been progress in bringing corporate lawlessness to heel by the writing of new laws, those laws have been weak (e.g. the Credit Card Accountability Responsibility and Disclosure Act of 2009, the Patient Protection and Affordable Care Act of 2010) thanks to the willingness of lawmakers to allow corporate lobbyists to influence and even to draft legislation. That, too, is allowed by the law.

What one sees on C-SPAN these days is that the members of Congress have, cynically or not, devoted more energy to using the big rhetorical stick to call CEO’s to account for not playing nice, than to, instead, using the big legislative pen to define a marketplace where inhumane outcomes would be illegal.

The Reagan-era idea that laws should not interfere with the conduct of business is a madness that fundamentally misunderstands the nature of markets. In fact, it removes the market from reality and places it into an unreality where markets—and societies—can only break down. It is a fundamentalism that takes the name of the free market but understands nothing about the essential role of laws in shaping and defining markets, market actors, and market conduct. When legislators, of all people, forget their own fundamental role in defining market realities through law, what we get is a Congress full of effete talking heads who can only rail against abuses which they themselves possess the sole power to prevent.

A hearing earlier this year of the Oversight and Investigations Subcommittee of the House Committee on Energy and Commerce brought home this point to me anew. It also reminded me that corporate decision-makers are not evil beings who look for new ways to rape and pillage. They do not rub their hands together in diabolical delight when they deprive the sick of health care, make working people’s retirement nest eggs vanish, despoil the environment, or pervert the legislative processes in order to yield the sort of lax regulations that lead to deepwater ecological catastrophes. They simply do whatever the law allows them—and their competitors—to do. And if their competitors are doing something, it is the nature of capitalist competition that they must do it, too, and do it better.

The hearing was held on February 24, 2010, its subject ‘Premium Increases by Anthem Blue Cross in the Individual Health Insurance Market’. Anthem, a subsidiary of Wellpoint, had announced that it would raise its rates for holders of individual policies (i.e. people who pay for health insurance on their own) by as much as 39% per year. The committee heard from a panel of affected policy-holders and then from two officers of Wellpoint: Angela Braly, the president and CEO; and Cynthia Miller, the executive vice-president, chief actuary and integration management officer.

Many of the committee members took the Wellpoint honchos to task. The accusation—laughable when you think about it—was that the rate hike was driven by Wellpoint’s desire for profits. The business model of American health insurance companies is well-known: collect money from healthy people and avoid paying it out to sick people. This is, of course, what the law has allowed, and so it is the way business is done. Wellpoint in particular distinguished itself for its use of rescissions: revoking people’s policies altogether, usually when they fall ill. According to a March 17, 2010 report by Reuters,

A 2007 investigation by a California state regulatory agency, the California Department of Managed Health Care, bore this out. The DMHC randomly selected 90 instances in which Anthem Blue Cross of California, one of WellPoint's largest subsidiaries, canceled the insurance of policy holders after diagnoses with costly or life-threatening illnesses to determine how many were legally justified.

The result: The agency concluded that Anthem Blue Cross lacked legal grounds for canceling policies in every single instance.

So yes, it’s quite a joke to accuse Wellpoint of raising rates for the sake of profits.

The committee came prepared with internal corporate memos and e-mail that demonstrated that, yes indeed, Wellpoint wants to make money. The Wellpoint officers, on the other hand, came across like courteous and reasonable people whose job it was to produce profits for their company by providing what they called quality health care. The result was that the two sides talked right past each other and the members of Congress were the ones who did not get it.

Here is the moment that struck me most. (The video is available via the Committee’s website and via C-SPAN.) Henry Waxman (D-CA) is the chairman of the House Energy and Commerce Committee and one of the House’s sharpest members.

REP. WAXMAN: And there's another document that—let me put it up on the screen, it's tab 14. In this document, WellPoint executives identify key issues confronting the individual market. And they stated, “Lack of attention to risk management, decreased ability to use preexisting claim denials and rescind policies and maternity policies have led to our first year loss ratios climbing from less than 50 percent five years ago to over 65 percent.” So these documents seem to indicate that senior executives are actively considering steps to reduce the amount of premium benefits that are used to pay for medical claims. If you're going to reduce payment for claims, you're reducing payment for claims for legitimate medical services.

MS. MILLER: We're trying to make sure that the pool of members that we have is not disadvantageous to the market place.

One person, a liberal stalwart of the House, says, I’ve got documented evidence that your company behaves horridly in a way that causes people to die because you’re greedy. The other person, the corporate VP, says that her company only wants people they can profit from. And of course, the law allows insurance companies to make such choices: to dump the ‘disadvantageous’, i.e. the ill, and to court the advantageous, i.e. the premium-paying healthy. The VP’s answer to the accusation is the correct one: she explained that the corporation does what it can to make profits. The fault here is Representative Waxman’s for not saying instead that he was going to make Wellpoint’s practices punishable by law. Did he really think he could shame the CEO and the VP of the company into doing good at a loss to the company? As usual, it’s the liberal who doesn’t get it. It is futile to appeal to corporations to behave better or more generously or more philanthropically. Corporations lack such capacities. There is no such thing as morality when it comes to corporate conduct. Only the force of law can change corporate conduct.

The brief excerpt above is exemplary, but I would like to explore the deeper implications of what Wellpoint’s vice-president said. To do that, let’s imagine what she and others do not say. With the help of my magical telepathy, I will now fill in the gap in the transcript with what Braly and Miller and all the other corporate decision-makers never say but ought to. Here it is: the unspoken testimony that follows from the above sentence in my alternate universe where people spell things out in full.

Mr. Chairman, your questions imply that you do not understand us, that you expect us to behave benevolently, philanthropically, altruistically, or even just decently. Although I try to live decently in my personal life, as the CEO of a publicly traded corporation I cannot, nor can my company. You and the American people need to understand this. We simply do whatever the law allows. You are the ones who make the rules that define the market and its permissible conduct. We follow your lead.

We must do whatever we can to be as profitable as our entrepreneurial creativity allows us to be. That is our only mandate. We cannot be motivated by anything else. If we were to stray from that mandate, we would be replaced by others who would not stray.

We behave this way because we must. If we could make money enslaving children, we would. The law allowed slavery on the site of this very building just 150 years ago. And if the law still allowed slave labor, we would use it. Why, some of our overseas workforce is quite a bit like slave labor. We will do whatever the law allows.

If we could make money selling human body parts for food, we would, but the law does not allow us to do that. If we could make money cluttering the oceans with plastic, we would. If we could make money removing mountaintops for the sake of mining what lies beneath them, we would. If we could make money selling cancer in a smokeable stick form, we would. In fact, we actually do those last three things, incredible as it sounds. We will do whatever the law allows.

No, please let me finish. Here’s where you come in. If you don’t want us to engage in inhumane practices X, Y, and Z, then you must outlaw practices X, Y, and Z, for we will do whatever the law allows.

We will create astroturf organizations—fake grassroots—to rouse people with scaremongering about death panels and such. We will sponsor bogus science to plant doubt in people’s heads about global warming. We will even try to influence the making of law through lobbyists and contributions if the law allows us to. We will do whatever the law allows, including the writing of the laws.

We will publicly say whatever we can to influence you to make the laws as friendly to our needs as possible. We will swear up and down that we could never find a way to make profits if you impose rule A or regulation B. It’s not true, sir. We are American business leaders. We are smart and talented and devoted to making profits. We will always find a way to make money and beat the competition. We could sell water to a well. Hell, we sell health insurance to the well everyday.

Mr. Chairman, please don’t ask me why we care more about bonuses and stock prices than we do about people’s suffering. As they say in the movies, it’s not personal. it’s just business. It is not our job to care about suffering. That is your job, sir. We will do whatever the law allows.

That does not make us bad or short-sighted people. We use our ingenuity and creativity everyday to make people rich. The same people whose coverage we deny are also our shareholders through their retirement accounts. We may not take care of them when they’re sick, but some of them make out quite well when they retire because we profitably denied their sick neighbors the costly coverage they needed. Take a look at your 401(k) plans before you cast the first stone.

No, we are not bad people, but the system compels competitive, not benevolent, behavior. We are immune to questions of shame, decency, morality, even humanity. The corporation is inhuman in that it lacks free will. It will always pursue profit and disregard unprofitable goals like compassion and sympathy.

Mr. Chairman, you and your fellow legislators are human. You can exercise free will and leadership in ways that we cannot. You shape the laws that govern our conduct. When will you get that through your thick skulls and stop acting like we are the monsters. You, members of Congress, are far more monstrous than we because you are the lawmakers: you create and maintain the rules that shape market conduct. If we persist in behaving in ways that wreck the country or the planet, that means that you have abdicated your responsibility to make laws that stop us from doing so.

Do you think I personally like throwing people off the insurance rolls? Do you think I enjoy hearing the sob stories that result from our actions? That we cackle in our lairs when the poor and unhealthy die of neglect?

But what choice do I have, Mr. Chairman? What’s that? Have I no decency? Capitalism does not reward decency. Have you no decency, sir? Have you not the decency to require decency in the marketplace? As I have said, if I were to start acting nice, my competitors would overtake us and our stock price would go down. We would lose the race, and I would be fired by the board and replaced with someone who would not pause to survey the wreckage in human lives that our corporation’s inexorable lunges forward leave in their wake. The corporation has no decency and neither can its officers if they want to remain its officers. That is the logic of the publicly traded corporation. You and the American people need to understand this and act accordingly. We will do whatever the law allows, but you are the ones who make the law.

Thanks for that clarification, imaginary CEO.

When it comes to the marketplace, law defines reality. We know what a bank is, and what is not a bank, because ‘bank’ is defined in law. The same holds true for mortgages, insurance, and so on, and who is allowed to sell them and under what conditions. Law gives the essential shape to markets. The Reagan-era notion that government should remove itself from markets is complete and utter madness, for without government, there could be no markets.

The more the role of government, particularly in its legislative and regulatory functions, recedes from the market, the more the market will recede from reality. Law gives definition to markets and products. It is the absence of laws that allows banks to offer unreal products like synthetic CDO’s.

True, law is reactive. It is always playing catch-up, and smart people will always find ways to bend and loop the law. But when the law allows corporations to write the laws that govern and shape the markets, we no longer have free and fair markets. And that is the point we have come to, the point we must retreat from.

The great work still lies ahead: we must turn back the ideological insanity of the Reagan years and restore government to its proper role of shaping and regulating market behavior. Let us take up that essential work now before we recede any further into unreality, financial anarchy, and ecological catastrophe.

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