WASHINGTON, May 30 (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. This is the second of two wrap-ups for May 30.
The Ludwig von Mises Institute
(The LVMI is a research and educational center devoted to classical liberalism -- often known as libertarianism -- and the Austrian School of economics. Grounded in the work of economists Ludwig von Mises and Murray N. Rothbard, LVMI seeks a radical shift in the intellectual climate by advancing the Austrian School of economics and by promoting the market economy, private property, sound money and peaceful international relations, while opposing government intervention as economically and socially destructive.)
AUBURN, Ala.-- Dances With Wolves
By Karen De Coster
Once again, the nation has been graced with the mothering wing of its congressional collective. The Corporate and Auditing Accountability, Responsibility, and Transparency Act (CARTA) passed the House with a whopping 334-90 tally, opening the doors to unbridled regulatory madness in the wake of Arthur Andersen's Enron-related transgressions.
CARTA is presented as an auditor oversight maneuver, one that would establish a public regulatory organization, or PRO, to perform certain review and disciplinary functions with respect to accountants who certify financial statements and other documents filed with the U.S. Securities and Exchange Commission.
However, the greater ambition of the Regulatory Wolves is to unleash the government's tentacles onto the private sector and drive out the various oversight bodies that currently watch over the accounting profession.
Closer review of CARTA reveals it is set in words too broad to accurately quantify in terms of regulatory specifics. Instead, the bill ensures that the regulatory doors are wide open for creative interpretations in regards to "market necessities" and "immediate needs." As SEC Chairman Harvey Pitt said to the House Committee on Financial Services, "We support the wisdom of having accounting standards set by the private sector, but subject to our vigorous oversight."
This vigorous oversight set forth by CARTA focuses on three main spheres for greater enforcement: financial statement disclosure, principles-based accounting standards (as vs. technical compliance), and corporate governance.
The first issue, financial statement disclosure, is in direct contrast to the goal of having principles supercede compliance standards. Public company financial statement disclosures are inherently technical in nature, being that they must meet the terms of
GAAP, or Generally Accepted Accounting Procedures. The disclosure rules encompassed within CARTA, however, are more centered on trampling the rule of law due to the political expediency of the day rather than refining the objective of reporting financial information.
In fact, the House bill sets forth notice that the SEC may indeed make determinations, by rule, for that which is "necessary in the public interest and for the protection of investors." The bill essentially provides for the cowboy enforcement of SEC rules by way of civil proceedings. That is, arbitrary rules that are made up along the way can be imposed and enforced at will by an obliging, State-supplied judge. Other than this stipulation, CARTA provides no new technical revelations concerning financial statement disclosures that aren't already self-imposed by the accounting profession.
Second, the fact that the SEC -- or any government agency -- wishes to develop a moral domain from which to buttress an entire profession is absurd. Pitt supplies an eye-opener when he maintains that his Commission "seeks to move toward a principles-based set of accounting standards, where mere compliance with technical prescriptions is neither sufficient nor the objective."
This is further defined -- in CARTA language -- as allowing the SEC more authority in developing accounting standards, which are currently set by the industry's own FASB, or Financial Accounting Standards Board.
"The SEC," says Mr. Pitt, "should exercise its authority to ensure that FASB's agenda is responsive to issues facing investors and accountants, and is completed on a timely basis."
Beware whenever a bureaucrat stresses "timeliness" and harps on the notion of a private industry body being submissive to the Regulatory Wolves. The stepping-up of
such authority on the behalf of governmental agencies, more often than not, comes to mean total replacement instead of mere reinforcement. With such an increasing role for
the SEC in the accounting industry, the rule-setting FASB is likely to become an extraneous body of idle figureheads.
Finally, there arises the goal of babysitting private entities. So important is the concept of corporate governance, we find our legislators already hard at work at devoting an entire bill to its being -- the Shareholder's Bill of Rights. Cloaked in the usual Orwellian turn of phrase, this bill that resides within a bill aims to control the conduct and compensation of corporate board members.
Maybe somebody forgot to tell our elected officials that shareholders in public companies already have an innate Bill of Rights via the voluntary nature of buying and selling stock and voting for corporate leadership. However, the notion that individuals can take care of themselves, make informed decisions, and voluntarily take risks based on the acquired knowledge at hand is a foreign concept to the self-nominated elites that ride roughshod over the real Bill of Rights.
Harvey Pitt, in his testimony before the House, wrapped up things with a plea to his bosses for additional funding in the budget and a minimum increase in staffers, consisting of 100 accountants, lawyers, and other watchdogs to help launch the SEC's new controlling agenda. Once again, crisis begets the growth of a bloated Leviathan.
In his January 2002 State of the Union address, President Bush called for "stricter accounting standards and tougher disclosure requirements." The message from Washington, D.C., is that a Merry-Regulation-Go-Round is always the answer for each and every unfortunate event that transpires in the corporate world.
We hear that, without ground rules from our assorted government agencies, there is no
"fairness" in the marketplace. We hear that government, and not the market, is the arbitrator of justice. Yet, Enron has been done in and Arthur Andersen will go bust, with or without the government's tweaking.
It's unfortunate that investors and innocent employees have to go down with the Enron-Andersen ship, but capitalism is never a guarantor of success, only a harbinger of opportunity. With the wolves watching the sheep, chances are the investor's market will become more volatile than ever.
(Karen De Coster, CPA and freelance writer, is a former Big Nine auditor and a business consultant in the Midwest.)
The Reason Public Policy Institute
LOS ANGELES -- Road show: go ahead and send the aid, but don't pretend it's for development.
By Mike Lynch
U2 frontman Bono and Treasury Secretary Paul O'Neill are on an African poverty safari that teaches many things, chief among them that publicity stunts still work. Not since John McCain's days on the campaign bus has there been such a media swoon.
The Odd Couple comparisons, the starched shirt vs. blue wrap-around sunglasses, are tired. But the most grating aspect is the dominant media frame through which it is being covered: that this is a traveling development aid seminar in which Professor Bono is schooling an ignorant and misguided secretary of the treasury on the virtues of foreign aid.
O'Neill, who, after all, grew up in a ditch, may have a thing or two to teach Bono.
There's certainly plenty of learning to be had. To get an accurate picture of the aid world, you don't have to spend taxpayer money on a learning junket to ill-equipped schoolhouses and villages without wells. You could stay in D.C. and review the records of the massive bureaucracies devoted to helping poor people in other countries achieve the status of "low income."
Or you could let World Bank insider William Easterly do that for you, and read his masterful book "The Elusive Quest for Growth." Easterly, like Bono and O'Neill, starts in Ghana. In 1957, the country had just gained independence from Britain, a separation that bequeathed it new roads, new health clinics, and new schools. At the time, the country produced two-thirds of the world's cocoa. It also, Easterly notes, had many developmental economists hoping to help it grow, plus a Soviet Union and United States eager to kick in cash and advice.
Ghana's new leader used foreign money to construct a giant dam, a project that was supposed to provide power for an aluminum plant even as it created a domestic fishing industry and brought transportation and irrigation to the farmers. In total, aid enthusiasts figured it would power growth of up to seven percent per year.
Only the aluminum plant came through. Writes Easterly, "The saddest part was that the Volta River project was the most successful investment project in Ghanaian history." Today, the country remains as poor as it was in the 1950s. Such stories are not particular to Ghana. (There is, for example, the Morogoro Shoe Factory, owned by the government of Tanzania, which failed to export a single shoe.)
Easterly also knocks the legs out from under the latest developmental fad -- education-driven growth -- pointing out that economic stagnation and decline has accompanied ever-increasing school attendance and literacy rates.
It's a hilarious read, if you enjoy gallows humor. The thesis of the book is that incentives matter, and where people have an incentive to invest in the future, they do so. Where that investment is likely to be destroyed by corrupt governments, they don't. And where they have an incentive to engage in corruption, they do that as well.
The problem of corruption is compounded by the fact that the development economists working in large international organizations know next to nothing about development. Instead, they apply a Soviet-inspired growth model to pump money into failed projects, such as Ghana's dam. It doesn't bother them that the economist who developed the model declared it useless in 1957, the year of Ghana's independence. The model tells economists how much money to dump into countries, and they like dumping the money -- so they keep using it.
This may not mean that aid is always a bad idea. It does say, though, that it's not good for economic development. Consider a current crisis, a famine in southern Africa produced by bad weather and terrible public policy. The Malawi government, whose citizens are currently starving, actually sold 167,000 tons of emergency grain last year but can't account for the money.
The agricultural economy of Zimbabwe, which typically kicks off surplus food, was decimated when President Robert Mugabe, facing re-election, decided to play his version of the race card and redistributed white-owned farms to blacks.
Such corruption and mismanagement aside, starving people need food. Lend a hand, then, but don't pretend it's a hand up. Perhaps that's something on which Bono and O'Neill can agree.
(Mike Lynch is Reason magazine's national correspondent.)
