Think Tanks Wrap-up

WASHINGTON, Feb. 7 (UPI) -- The UPI Think Tank Wrap-up is a daily digest covering brief opinion pieces, reactions to recent news events, and position statements released by various think tanks.

The Acton Institute


(The Acton Institute works to promote a free and virtuous society characterized by individual liberty and sustained by religious principles. Its goal is to help build prosperity and progress on a foundation of religious liberty, economic freedom, and personal moral responsibility.)

GRAND RAPIDS, Mich.--Strategic Dissonance at Arthur Andersen

By Rob Simpson

As Arthur Andersen scrambles to retain its client base and re-establish its credibility, the firm's management may want to spend a few moments revisiting their calculation of the present value of the $25 million it received from Enron for consulting services. At the foundational level, common sense corporate finance would tell us that a good investment is one that is worth more tomorrow than it is today.


Is the present value of $25 million in corporate consulting fees from Enron worth more than the potential revenues of $100 billion over the next eight to 10 years?

The answer to this question may not depend on how well Andersen executives can explain the opportunity costs and calculated risks contained in their strategic corporate goals. SEC Chairman Harvey Pitt testified before the House Financial Services Subcommittee and offered that it is unclear whether Arthur Andersen's actions involving Enron were illegal, unethical, or just incompetent. In fact, the SEC hesitates to go after accounting firms who are viewed as simply negligent in their work.

According to Pitt, the definitions of negligence and illegal actions are ambiguous in the current regulatory environment. It may be that throughout the tumult with Enron, the fine line between illegal, unethical, and incompetent has been blurred completely.

Perhaps an examination of the reality of strategic dissonance in corporate life can offer some insight into the Anderson/Enron debacle.

Strategic dissonance occurs when there is a difference between an organization's policies and the actions that it takes. At Arthur Andersen, strategic dissonance may be the result of corporate policies conflicting with the actions taken or it may be the result of corporate values conflicting with the moral lapses of judgments made by executives. I offer three possible points of examination where the firm's actions may have deviated from policies, or where moral lapses in judgments may have occurred.


First, were the actions of the Arthur Anderson's auditing team illegal? Is it possible that $25 million in consulting fees could buy the silence of an entire team of "independent" auditors and consultants?

If such an event did indeed occur, then it is quite clear that sound moral reasoning evaporated. In such a case, the next issue is whether the number of staff involved was one or hundreds. Members of the House Financial Services Committee seem to think that a level of fraudulent activity by hundreds would be difficult to prove, although such a possibility does exist.

The management of Arthur Andersen took swift action to head off such allegations by dismissing David Duncan, the Andersen executive who served as engagement partner on the Enron audit. They have also placed three additional partners on administrative leave, pending the completion of the investigation. Arthur Andersen is seeking to limit its liability by taking these aggressive actions and by making public the fact that employees disposed of a "significant number of electronic and paper documents." Company spokespersons were careful to state that the destruction of these documents is a clear violation of corporate policy, and the files were destroyed based on instructions from Mr. Duncan.


Another possible point of examination is the idea that all CPAs at the firm are simply incompetent. Is it reasonable to assert that the Generally Accepted Accounting Principles known as GAAP, are so confusing that even the brightest and most well trained CPA's can not understand them?

Remember that these standards are actually set by a self-regulated board of CPA's called the Financial Accounting Standards Board. Based on the training CPA's typically receive and the professionalism shown in most accounting firms, such incompetence on a mass scale would be rather remarkable. It is highly unlikely that any company would entrust a $25 million audit and consulting project to incompetent staff.

A third and final point of examination could be that the entire audit team was involved in some level of unethical and/or immoral behavior. A disturbing question looms -- is such behavior prevalent in one of the world's largest professional accounting and consulting firms? Or could it be that the GAAP are written to encourage and allow for "creative interpretation?"

Arthur Anderson is attempting to play down the allegations of widespread unethical behavior; however, it has acknowledged limited liability through the swift actions to remove those deemed responsible for the Enron mess. If the audit and consulting activities of Enron do not even equal one half of one percent of their revenues, one rightly wonders why Andersen executives have jeopardized the entire organization for this small percentage of its business?


Obviously, the three points above concerning the conduct of Arthur Andersen do not provide answers. The question remains: how did Arthur Anderson fail so miserably to fulfill its professional duties as independent auditors? The answer has yet to be discovered. Although $25 million may not have bought illegal actions, paid salaries of incompetent CPA's, or fostered unethical behavior, it can surely be said that this is the worst return on any investment Arthur Anderson has ever made.

Key in understanding Arthur Andersen and its actions is an examination of the moral and ethical system individuals within the company used in evaluating what was right and wrong in determining Enron's fiscal situation. Morality deals with and serves as a point of examination for human actions and intentions. The ability to engage in moral reasoning and make sound ethical decisions, based on clear understandings of right and wrong, is a power unique to humans.

No doubt, a skewed moral compass concerning ethical business practices is a sure way to introduce strategic dissonance into the life of a corporation. If the moral compass of those executing corporate polices is at odds with the policies themselves, trouble is on the horizon.

We are already seeing a push for greater government regulation of financial markets and adoption of more complex financial and accounting principles with the intent to protect investors. In fact, the SEC, the FASB, the House Financial Services Subcommittee, and countless other organizations have vowed to pursue reform of accounting standards that would make transparency and full disclosure a legal requirement. These are essential features of free markets, but it is far from clear as to whether government intervention is capable of achieving this goal.


The cycle of the "accounting life" continues. As a self-regulating board, FASB is a target for those who push for greater governmental regulation. Critics cite the Andersen/Enron situation as an example "par excellence" of accountants' inability to police themselves. It remains to be seen, however, if greater regulation and more complex accounting standards will accomplish the "reforms" necessary to discourage another failure similar to the one Andersen and Enron are now experiencing.

Perhaps the question that needs to be asked is a much harder one, dealing with the moral convictions and lapses of those responsible for the current situation. Given the mysterious dynamics of human freedom, it would be impossible to guard against every harm an investor may encounter.

The reality is that the most fundamental reforms needed deal with those individuals charged with the governance of a company, and these are the tough reforms that no amount of regulation can enforce.

(Rob Simpson, Ph.D. is the director of administration and finance at the Acton Institute.)

The Cato Institute

Why Enron Wants Global Warming

by Patrick J. Michaels

By now, much to the chagrin of my greener friends, it is common knowledge that Enron Corporation was lobbying the Bush administration for highly profitable policies relating to the Kyoto Protocol on global warming. In fact, the tatters of Enron still want the administration to place a cap on carbon dioxide emissions so the company can broker the trading of "permits" to emit carbon dioxide under that cap.


The purpose of those permits is to gradually "dial coal out of the economy," increasing its cost relative to natural gas (which emits slightly less carbon dioxide per unit energy than coal). Enron, of course, would be happy to pass the gas through their pipelines after brokering the permits to burn it. So Enron was very big on Kyoto. Company correspondence asserted it would "do more to promote Enron's business" than any other single regulation.

"Big deal," you say. This is just sleazy Washington at its finest, and Enron looks just like another pig at the trough. The eyes of K Street turn from gimlet to glaze.

But what's not run-of-the-sty is a 1998 letter, signed by Enron's then-CEO Kenneth Lay (and a few other bigwigs), asking President Clinton, in essence, to harm the reputations and credibility of scientists who argued that global warming was an overblown issue. Apparently they were standing in Enron's way.

The letter, dated Sept. 1, asked the president to shut off the public scientific debate on global warming, which continues to this date. In particular, it requested Clinton to "moderate the political aspects" of this discussion by appointing a bipartisan "Blue Ribbon Commission."


The purpose of this commission was clear: high-level trashing of dissident scientists. Setting up a panel to do this is simple -- just look at the latest issue of Scientific American, where four attack dogs were called out to chew up poor Bjorn Lomborg. He had the audacity to publish a book demonstrating global warming is overblown.

Because of the arcane nature of science, it's easy to trash scientists. Imagine a 1940 congressional hearing to discredit Einstein. "This man actually believes the faster you drive, the slower your watch runs. Mr. Einstein, then why weren't you here yesterday?" The public, listening on radio, immediately concludes this Princeton weirdo is just another academic egghead. End of reputation.

The proposed commission was billed as an "educational effort" that would lead to "subsequent policy actions," which the letter itself recommended. These included a directive to "establish the rules for crediting early, voluntary emissions reductions [of carbon dioxide]." And who was going to sell these credits? Enron, of course.

But what about Kyoto itself, which Enron knew would never be ratified by the required 67 senators? In 1998, Kyoto enjoyed the support of about 12 senators.

"We urge the Kyoto Protocol not be submitted to the Senate in the near future, where pre-emptive rejection would remove the U.S. from a political leadership role," said Lay's letter. In other words, Lay wanted to derail the normal democratic process of having our elected officials vote on a treaty, so that Enron could prosper.


While that was happening, Enron commissioned its own internal study of global warming science. It turned out to be largely in agreement with the same scientists Enron was trying to shut up. After considering all of the inconsistencies in climate science, the report concluded: "[T]he very real possibility that the great climate alarm could be a false alarm. The anthropogenic warming could well be less than thought and favorably distributed."

One of Enron's major consultants in that study was NASA scientists James Hansen, who started the whole global warming mess in 1988 with his bombastic congressional testimony. Last month, he published a paper in the Proceedings of the National Academy of Sciences predicting exactly the same, inconsequential amount of warming in the next 50 years as the scientists that Enron wanted to gag. They were a decade ahead of NASA.

True to its plan, Enron never made its own findings public, self-censoring them while it pleaded with the new Bush administration for a cap on carbon dioxide emissions that it could broker. That pleading continues today--the remnant-Enron still views global warming regulation as the straw that will raise it from its corporate oblivion.

(Patrick J. Michaels is senior fellow in environmental studies at the Cato Institute and author of "The Satanic Gases.")


The Hoover Institution

STANFORD, Calif.--Globalization versus Imperialism

by Tibor R. Machan

Globalization, some say, is a form of imperialism. Along with the supposed invasiveness of American culture--via Hollywood movies, McDonald hamburgers, and Coca Cola products--globalization is seen by some as the equivalent of international aggression.

A similar charge was made some years ago at a United Nations conference in Vienna; representatives of some non-democratic nations complained that the idea of human rights was intrusive and imperialistic and thus threatened the sovereignty of their countries. Some serious political thinkers still object to the very notion of universal ethical and political principles, as if human beings as such didn't share some basic attributes that imply certain guidelines for how they should live.

To charge that globalization is imperialistic is like claiming that liberating slaves imposes a particular lifestyle on the former slaves. Globalization, in its principled application, frees trade. Barriers are removed and restraint on trade is abolished, both the opposite of any kind of imposed imperialism.

The idea that economic principles are culturally relative confuses highly variable human practices with ones that are uniform across all borders. The production and exchange of goods and services are universal. The political contingencies of various societies, born often of power, not reason, distort such universality by imposing arbitrary impediments. Slavery, the subjugation of women, and the prohibition of wealth transfer from parents to offspring are examples of conditions not natural to human life--rather they are artifacts of ideologies.


American intellectuals often fail to appreciate the country's goal of establishing a political ideal for human beings in general, not for blacks, whites, women, Catholics, or Muslims. This ideal, when exported, is the farthest thing from imperialism. It is, in fact, the closest we have ever come to bona fide human liberation (a term inappropriately adopted by Marxists who mean to impose a one-size-fits-all regime).

Globalization has thus not been effectively linked with what is at its heart, namely, human liberation. Because some schemes have been mislabeled as cases of "globalization," the genuine article has tended to acquire a bad reputation. But those are exceptions. To globalize has been to spread freedom, particularly in commerce but also in politics and civil life.

Genuine globalization should be supported not only because it is economically prudent but also because it is consistent with a basic human aspiration to be free. This is no threat to cultural diversity, religious pluralism, or the great variety of benign human differences with which globalization can happily coexist.

Only those who wish to impose their particular lifestyle on the rest of us would fear globalization and the spread of human freedom.

(Tibor R. Machan is a Hoover Institution research fellow and Distinguished Fellow and professor in the Leatherby Center for Entrepreneurship & Business Ethics at the Argyros School of Business and Economics, Chapman University, in Orange, California.)


Reason Foundation

LOS ANGELES--Dick Gephardt's Beautiful Mind: Or, How To Simplify Taxes By Complicating Them

By John J. Pitney Jr.

House Minority Leader Richard Gephardt (D, Mo.) recently called for an economic summit aimed at figuring out how to "simplify the tax code." The Missouri representative also said "the first $10,000 of your education should be tax deductible." If that sounds a tad inconsistent, consider what he said a few days earlier in a speech to the Democratic Leadership Council.

Gephardt urged tax incentives for partnerships between universities and small businesses, investment in renewable energy, the purchase of fuel-saving vehicles, and improved energy efficiency in new buildings. He would also increase the Earned Income Tax Credit, make refundable the $500 child tax credit, and make permanent the credit for contributions to retirement savings plans.

Simplifying the tax code means getting rid of deductions and credits in exchange for a lower rate. It's tough to do that when you're adding deductions and credits.

Gephardt is hardly the first politician to take contradictory tax positions. In 1996 GOP presidential candidate Bob Dole called for "a fairer, flatter, simpler tax system" while simultaneously pushing for adoption tax credits, IRAs for homemakers, and other preferences. But Gephardt is unique in that he has been contradicting himself so brazenly for so long.


As a junior House member in the late 1970s, he supported tax credits for private and parochial school tuition. In 1987 he told The New York Times he no longer favored such credits because the Internal Revenue Code should not be "cluttered with credits and deductions." Now he's back to pushing tax deductions for educational costs.

In 1981 Gephardt voted for the Reagan tax cuts. When he ran for president in 1988, he defended that position, which his aides saw as a winner. "[Sen. Paul] Simon and [Gov. Michael] Dukakis stumbled into it, criticizing us on taxes," his deputy campaign manager told the Los Angeles Times. "If they want to talk about how Dick Gephardt voted to cut taxes in New Hampshire, we said, sure, we'll talk about that."

Last year Gephardt cited the Reagan cuts to denounce the Bush cuts. "People like me got calls from my constituents in 1981 saying, 'Give Ronald Reagan a chance,'" he said. "Well, after we lost our alternatives, people like me gave him a chance. I voted for the Reagan tax cut in the end in 1981. It was a mistake."

Speaking in Iowa in July 2001, Gephardt suggested that the 1993 tax increase was a model: "I'm glad we did what was right in 1993, and I'll do it again because I believe in being fiscally responsible with the taxpayers' money." A few days later, he issued this statement: "I never addressed the future of taxes in my remarks because I don't believe they need to be raised."


In the 1980s, Gephardt sponsored legislation to overhaul the tax code by scrapping tax preferences. He told a group of business executives in 1985, "I feel more comfortable with the free market system deciding where capital should be allocated than with Dick Gephardt planning it."

In the 1990s, Gephardt proposed another major overhaul, which would have reduced tax rates by repealing nearly all itemized deductions. In a debate with Jack Kemp, he explained that he wanted everyone on a level field.

"If you go out and earn your wages every day by working, you get taxed at a certain rate," he said. "If you earn by investing in capital...then you will pay at a similar rate. Why do you want to prefer one set of actions over another?"

A striking feature of this proposal was a requirement for a national referendum before any increase in tax rates. In 1995 Gephardt said such a requirement was necessary to block costly tax breaks.

"When people look at tax reform," he said, they think, " 'Oh, sure, there they go again. They're going to lower my rates and they'll be back in two years opening up some more loopholes for rich people, and I'm going to pay through the nose.' "


Yet even before his 2002 tax credit fusillade, Gephardt was supporting tax preferences for individuals and businesses. The Web site for his 2002 re-election campaign includes this boast: "Dick Gephardt has consistently co-sponsored the Historic Home Ownership Assistance Act, which provides a Federal tax credit to individuals who rehabilitate historic homes."

Such wild contradictions could prove a handicap if Gephardt seeks the presidency again. His spinmeisters might try to contain the damage by recalling a famous quotation from F. Scott Fitzgerald: "The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function."

(John J. Pitney Jr. is a professor of government at Claremont McKenna College and author of "The Art of Political Warfare."

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