Saturday, November 22, 2008

Dingell Loses to Waxman and Auto Stocks Dive

Dingell Loses to Waxman and Auto Stocks Dive

Call It What It Is: Corruption


By Joshua Holland, AlterNet

Posted on November 21, 2008



In a functional democracy -- one where lawmakers pursue

the public interest -- the stock prices of politically

connected companies or industries shouldn't be impacted

by the changing fortunes of politicans with whom they're cozy.


But yesterday, Representative Henry Waxman (D-CA)

wrested control of the influential House Energy and

Commerce Committee from fellow Democrat John Dingell

(MI), and auto stocks tanked on the news. It's an aspect

of the story that will likely get little attention --

taken, with some justification, as just so much business as usual in Washington.


Dingell, who is quite progressive in some areas, is also

firmly in Big Auto's pockets, and has clashed with

Waxman on a number of issues over the years -- issues

like beefing up regulation of vehicle emission

standards. Over the course of his career, three of

Dingell's top four contributors were GM, Ford and

Daimler-Chrysler; his wife, Debbie, was an industry

lobbyist until their marriage in the early 1980s and

continues to work for GM today. According to disclosure

forms, the couple owned more than a million bucks worth

of Big Auto stocks and options as of 2006. After the

last election, Dingell hired a Daimler-Chrysler lobbyist

whose previous job had been keeping Congress from

increasing vehicle efficiency standards to serve as the

committee's Chief of Staff.


Waxman is one of the most liberal lawmakers on the Hill,

and has fought tenaciously against the Corporate Right

on issues ranging from oversight of the "security

contractors" that have run amok in Iraq to stronger

environmental standards.


There will no doubt be plenty of analysis about what the

hugely significant change in leadership on the committee

will portend for the next president's agenda. Energy and

Commerce plays a key role in crafting a huge variety of

legislation -- from consumer protection, food and drug

safety and public health and environmental policies to

the supply and delivery of energy and international trade.


But that's not the only interesting aspect to this

story. Consider this opening to a piece on the

Washington Post's website -- it reveals much about

American governance:


    Waxman Gains House Energy Committee, Auto Stocks Drop


    Struggling Detroit Automakers have lost a loyal

    friend in Rep. John Dingell (D-Mich.), who will hand

    over the Energy and Commerce committee gavel to Rep.

    Henry Waxman (D-Calif.), The Post's Paul Kane is reporting.


    Waxman is a strong backer of President-elect Obama

    and his tougher stance on environmental issues.


    As chair of the Energy committee, Waxman will have a

    key role in implementing Obama's policies, which

    could include higher fuel-efficiency standards for

    GM, Ford and Chrysler vehicles.


    In response, shares of GM and Ford fell following

    the news of Waxman's ascension.


    Ford is threatening to punch through the $1-per-

    share floor. GM is trading at its lowest leels in 70 years.


Most people wouldn't give that headline a second

thought. Why wouldn't auto stocks take a hit soon after

the industry "had lost a loyal friend" on a key

regulatory committee?


It's business as usual, of course, but it's also

evidence of a corrupt government. That's according to

forensic economists -- the CSIs of the "dismal science."


Corruption is difficult to measure. Organizations like

Transparency International rank countries according to

people's -- especially business-people's -- perceptions

of government corruption. But perceptions can be a

tricky thing -- people doing business in a country can

have all sorts of motivations for under- or over-

reporting the degree of corruption they encounter. And

critics have claimed that the rankings are highly

politicized, with business-friendly countries getting a

pass even if their customs inspectors and highway cops

shake down everyone passing before them.


But, as Raymond Fishman and Edward Miguel, two

professors who penned the book Corruption, Violence, and

the Poverty of Nations, wrote recently in Foreign Policy

($$), forensic economists are pursuing a more

methodologically sound way of rooting out government

corruption: watching how the ups and downs in the

careers of government officials impact the stock prices

of firms to which they're connected in one way or another.


Fishman and Miguel laid out the rationale behind the approach:


    Whether through hefty campaign contributions or

    cushy jobs for former politicians, corporations are

    constantly accused of trying to profit through

    political ties. (Just think Halliburton or Russia's

    Gazprom). But what's the real value of these

    companies' connections? If you ask politicians or

    investors, you're likely to hear a lot of denials.

    To get the truth, we could ask insiders to put some

    money where their mouths are, making them bet some

    of their own cash on whether particular companies

    are making back-alley deals with politicians to

    increase their profits. In this political betting

    pool, raw financial self-interest would lead bettors

    in the know to reveal their true beliefs about corruption.


That betting pool is, of course, the stock markets. The

scholars wrote: "If connections buy tax breaks, valuable

licenses, and advantages in bidding for government

contracts, then strengthening political ties should

boost profits. These higher profits translate directly

into higher stock prices, and conversely, removing those

ties should send profits -- and stock prices -- tumbling."


Purdue University economist Mara Faccio studied those

ties in every country that had a functional stock

market. Not surprisingly, Faccio found strong

connections between business and government across the

board, but she also noted that the value of those

connections in terms of stock prices varied greatly.


In the UK, for example, stock prices don't move at all

when a firm's political ties wax or wane. When Rolls-

Royce Chairman John Moore was appointed to the House of

Lords, it didn't touch Rolls-Royce's stock price. But in

Italy the picture's quite different. When Fiat chief

Giovanni Agnelli was appointed to the Italian Senate,

Fiat's stock soared by 3.4 percent, adding millions of

dollars in value to the company in a single day.


Now consider that headline once more -- "Waxman Gains

House Energy Committee, Auto Stocks Drop." It says that

we're a lot closer to Italy's infamous level of public

corruption than we are to that of our British cousins.


One could argue that the Big Three's tanking share

prices are simply a product of a Rep. from California

knocking a local Michigan pol out of a key committee

chairmanship. But in order for that argument to hold

water, one would have to further claim that Dingell's

five decades spent fiercely opposing  beefed up

emissions and fuel efficiency standards served not only

the short-term interests of the Big Three's bottom-

lines, but also the long-term interests of the rest of

his constituents. That's a tough argument to make,

especially at this moment in time.


It's also the case that Congress didn't give the Big

Three the $25 billion in "bridge loans" they'd begged

for, which no doubt hurt their share prices as well.

But, as Fishman and Miguel noted, the pattern is well-established:


    Numerous studies have found that the economic

    fortunes of well-connected U.S. companies mirror the

    political fortunes of their connections. When U.S.

    Sen. Jim Jeffords defected from the Republican Party

    and handed Senate Democrats a slim majority in 2001,

    Democratically connected companies benefited in the

    immediate aftermath. Similarly, the stock value of

    companies with former Republican lawmakers on their

    boards increased an average of 4 percent when the

    Supreme Court handed the 2000 election to George W.

    Bush, while companies with former Democratic

    politicians on their boards declined.


The take-away from all this is that while there's reason

to celebrate progressives like Waxman increasing their

influence at the beginning of the Obama era, we also

need to keep in mind that the system in which they

operate is rotten, and that there's still a lot of work

to be done in order to bring responsible governance in

the public interest to Washington. No matter who

occupies 1600 Pennsylvania Ave., there’s still an

enormous amount of centralized power in DC, and Congress

still has an incumbancy protection racket and seniority

system that allows industries to keep a loyal foot

soldier like Dingell in a place of power for decades (in

1955, Dingell took the seat his father had held until his death).


What's more, we shouldn't dismiss public corruption as

just so much "business as usual" when it's right there,

staring us in the face.


Joshua Holland is an AlterNet staff writer.

© 2008 Independent Media Institute. All rights reserved.


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