Monday, September 1, 2014

31 August 1914

One hundred years ago, Europe plunged into mass self-immolation in the service of dim and corrupt monarchs. After a short skirmish to determine lines of defense, WWI settled into massive trench warfare for more than four years, and the blood flowed in Europe like never before. By the end of August 1914, everyone had declared war on everyone, and the long march of death commenced.

Among the millions of dead are the approximately 10,000 souls whose unidentified bones rest at the Navarin Ossuary in northern France, as depicted above. The ossuary is located just north of the Champagne region, and they still occasionally find unidentified bones today, in the nearby fields and the remains of the adjacent network of trenches and surrounding bomb craters. The machinery of death ground up soldiers so thoroughly that it was impossible to identify who belonged to which bones so they threw up monuments like the above, and took a wild guess at the number of dead.These ossuarys are all over northern France, I simply stumbled across the one above, along with numerous military cemeteries. If you really need to further ponder the carnage of WWI, go here, for example.

This war was not necessary. Law cannot abolish wars, but it can absolutely minimize them. The problem with World War I is that the ineptitude of monarchs and their concentrated power caught up with the world. As the US Constitution shows law can fragment power, and law can help assure that meritocratic competition determines who is the most competent and ethical for purposes of wielding power. Simply stated law can curb and channel power productively.

Many believe that WWI was inevitable, that alliances and militarism caused WWI. Former Secretary of State Henry Kissinger recently took that position. I argue that the world spins from crisis to crisis. That in order to manage these crises, it is essential to have the best and the brightest at the helm and the full costs and benefits of crisis resolution or irresolution must fall on those with power. Monarchies reflect the opposite of these principles. These monarchs were not the best and the brightest, simply the most inbred. When they decided to let slip the dogs of war, they calculated that the costs would be borne by their people, not themselves.

The corruption of Tsar Nicholas, the ineptitude of Emperor Franz Joseph, and the arrogant stupidity of Kaiser Wilhelm caused WWI, not a group of abstract notions. In closing let me offer some quotes from some of the new scholarship on the causes of World War I.

On the folly of the Kaiser and Germany: "how would an Austro-German alliance of 120 million defeat an Entente alliance of 260 million that wielded more troops, more ships, and 60 percent more national income? Superb at tactics, the Germans were appalling at strategy, avoiding the net assessments of themselves and the Austrians that would have led them to seek a diplomatic solution, not war, in July 1914." (Wawro, 373).

On the ineptitude of the Emperor and the Austrians: "[Austria] was a desperately conflicted power that thought nothing of throwing all of Europe into the flames to preserve its ancient rights to lands like Bohemia and Hungary--lands that had lost all interest in the Hapsburg connection and were trying to break away. Austria's Great War was built on the reckless gamble that the monarchy's internal problems could be fixed by war. They couldn't." (Wawro, 383).

But my own favorite example of a dim-witted and corrupt monarch is Tsar Nicholas. His support of state-sponsored terrorism (knowingly or otherwise) is the proximate cause of WWI. It led directly to the source of ignition--the assassination of Franz Ferdinand. His blundering decision to mobilize for war in late July of 1914 made war inevitable. He held the last clear chance to avert war and he unleashed war knowing it would lead to a bloodbath:
"The decision for European war was made by Russia on the night of 29 July 1914, when Tsar Nicholas II, advised unanimously by his advisers, signed the order for general mobilization. General mobilization— as he knew— meant war. So clearly did the tsar know this that, on being moved by a telegram from Kaiser Wilhelm II, he changed his mind. 'I will not be responsible for a monstrous slaughter' is the key line of the entire July crisis, for it shows that the tsar, for all his simplicity—knew exactly what he was doing when he did it. He knew exactly what he was doing when he did it again, sixteen hours later, after agonizing all day about it." (McMeekin, 398).

Tsar Nicholas "opportunistically" pushed for Russian expansion into the Balkans and for a warm water port and thereby triggered a "monstrous slaughter." (Wawro, 51).

Monday, August 25, 2014

This Doesn't Happen To White People

Kimberly Jade Norwood
Up on CNN this morning is a compelling post "This Doesn't Happen to White People" by Kimberly Jade Norwood, a law professor at Washington University in St. Louis, discussing events in Ferguson, Missouri, just 12 miles from where she lives.  Professor Norwood reports what an African American mother of four fears on a daily basis:

"Driving, I tend to have a bit of a lead foot -- hitting 45 in a 35 mph zone. The few times I have been stopped in my suburb, the first question I'm asked is whether I live 'around here.' Not one of my white friends has been asked that question when they were pulled over by a police officer.

Last summer, my teenage daughter was shopping with four white friends at a mall in an affluent St. Louis suburb. As they left the store, two mall security guards approached my daughter. They told her the store had called them and reported her as a shoplifter, and asked her to come with them. After a search, they found she had nothing. So far in her young life, mall security guards have stopped her on suspicion of shoplifting three times. Each time she was innocent.

I also have three sons. My two oldest are 22. They are 6-foot-5 and 6-foot-4 and each weighs more than 220 pounds. One recently graduated from college; the other will graduate in 2015. The youngest is 13. All three like to wear jeans and the latest sneakers. They love hoodies. They like looking cool. These three young men have never been arrested or even been in a fight at school.  Every time my sons leave the house, I worry about their safety."

Saturday, July 19, 2014

More on Apis and the Black Hand . . . and the Folly of the Monarchs



I recently reviewed many U.S. history books and texts, from a variety of high profile publishers. Amazingly little mention is made of Serbia as a nation-state in 1914, and zero mention is made of the Black Hand organization or its shadowy leader, Apis (a.k.a Colonel Dragutin Dimitricivitch).

Remarkably, the core cause of the outbreak of World I is ignored in mainstream U.S. history. The basic facts are these: Apis (left) founded the Black Hand along with other Serbian military officers including Major Voja Tonkositch; the Black Hand sought to unify all Serbians beyond the borders of Serbia to create a Greater Serbia; they are associated with a number of assassinations and attempted assassinations; they orchestrated the Sarajevo Assassination that led to World War I; Apis was the head of Serbian Military intelligence; Serbian border guards participated in the Sarajevo plot; the weapons used in the Sarajevo assassination came from the Serbian state armory; and Prime Minister Pasic knew of the nefarious activities of Apis and acted quickly after June 28, 1914 to cover them up. This is all established in my prior posts, as well as a series of new books on the causes of World War I.

The Austrians found all the essential elements of the assassination plan that could be found from an investigation in Sarajevo. The confession of Danilo Ilic (and other assassins) immediately after the assassination directly accused Major Tankositch (right) and the Serbian military in the assassination. The Austria-Hungarian government would need assistance from the Serbian government to follow the leads into Belgrade. That is where things stood on July 13, 1914, and at this point Serbia could have co-operated (as in any transnational murder plot) and World War I could have been averted--saving up to 37 million from the ravages of war.

But Serbia chose not to cooperate at all and the Russians backed them to the hilt through their Serbian Blank Check. Why? Well because both the Serbs and the Russians were in on the murder plot up to their ears, according to the eventual confession of Apis, reproduced here (and generally not otherwise available online):
"Feeling that Austria was planning a war with us, I thought that the disappearance of the Austrian Heir Apparent would weaken the power of military clique he headed, and thus the danger of war would be removed or postponed for a while. I engaged Malobabic to organize the assassination on the occasion of the announced arrival of Franz Ferdinand to Sarajevo. I made up my mind about this only when Artamanov [The Russian Military Attaché in Serbia] assured me that Russia would not leave us without protection if we were attacked by Austria. On this occasion I did not mention my intention for the assassination, and my motive for asking his opinion about Russia's attitude was the possibility that Austria might become aware of our activities, and use this as a pretext to attack us. Malobabic executed my order, organized and performed the assassination. His chief accomplices were in my service and received small payments from me. Some of their receipts are in the hands of the Russians, since I got money for this purpose from Artamanov, as the General Staff [of the Serbian Army] did not have funds available for this increased activity."
As for the Russians, Artamanov admitted that he had funded the Black Hand (but denied fore kowledge of the assassination). Thus, the Apis confession is fully consistent with the report of attorney Freidrich Von Wiesner of July 13, 2014, as well as subsequent admissions by Colonel Artamanov.

In light of the above, blaming primarily Germany for World War I is untenable, even though Germany also suffered from a dim monarch who went on vacation during July 1914. Moreover, the mainstream US approach that vague notions of militarism, alliances, and nationalism led to war is also nonsense. These forces are constants and yet do not always lead to war. (Consider the cold war for example, which never erupted like Europe in 1914).

Instead, World War I illustrates the problems with concentrated, unaccountable, and non-meritocratic power. It proves the folly of monarchies, and the need for law to channel and curb power for the benefit and welfare of society generally, as I argue in Lawless Capitalism, and will elaborate on shortly.

Indeed, the monarchs of World War I closely resemble the financial titans of today--willing and able to bring great ruin upon the world in reckless pursuit of their own venal and narrow self-interest.

Sunday, July 13, 2014

Emperor Franz Joseph and the Incredible Missing Dossier

Emperor Franz Joseph of the Austrian-Hungarian Empire haplessly occupied the Hapsburg throne from 1848 to 1916, one of the longest reigns in history. As the French noted just before the war, Franz Joseph "has no character to speak of; he's a drifter, floating from one system to the next; he has no real friends or confidants; he trusts no one, and inspires confidence in no one, nor does he even believe in himself." Further, he was an "utterly inert, stupid and despairing soul." As Emperor, Franz Joseph would not allow anyone to speak unless he spoke to them first. At 84 years old in 1914 he was borderline senile or as one scholar puts it "the emperor had been in an alarming state of dotage for years." (Wawro, xxiv, 17, 21, 31). All of this would be interesting trivia except for the fact that Emperor Franz Joseph bears the ultimate responsibility for Austria-Hungary's declaration of war on Serbia on July 28, 1914, leading to World War I. That declaration can only be termed recklessly suicidal and inexplicably stupid.

My argument begins on July 13, 1914. On July 13, 1914, the Austrian lawyer, Freidrich Von Wiesner, had completed his investigation into the conspiracy to assassinate Archduke Franz Ferdinand in Sarajevo. His findings directly implicated Serbian officials. According to Sean McMeekin, in July 1914: Countdown to War (p. 120) :
While Wiesner all but ruled out actual Serbian government complicity in plotting the crime, he did declare it “beyond reasonable doubt” that the plot had been hatched in Belgrade with the assistance of (Serbian Army) Major Tankositch, who had provided the assassins with “bombs, Brownings, ammunition, and cyanide of potassium” to swallow after their deed. It was also clear that “Princip, Chabrinovitch, and Grabezh [had been] secretly smuggled across the frontier by Serbian officials.” While Wiesner’s report did not go far beyond what Potiorek had already discovered, his careful, lawyerly prose reassured Berchtold that a proper dossier outlining Serbian guilt would be ready in time to make Austria’s case for war.
Major Voja Tankositch was a co-founder and a leader (McMeekin, 7) of the Black Hand, which had deep connections within the Sebian state, most particularly through the head of Serbian Military Intelligence, Apis (who ultimately confessed to leading the Sarajevo assassination plot). (McMeekin, 9). Apis is the code name for Colonel Dragutin Dimitrijevic who was the ultimate leader of the Black Hand.

In other words, in just over two weeks the Austrian lawyer had uncovered a conspiracy that certainly involved senior members of the Serbian government, even if the government itself had not formally sanctioned the assassination. In fact, it ultimately came to light that the Prime Minister himself had foreknowledge of the entire affair, as noted in my prior post. So, Austria-Hungary had solid cause to demand a more thorough investigation in Belgrade, the capital of Serbia, as they would do in their ultimatum to Serbia that triggered war.

But, instead of using this evidence to show the justness of their cause Austria sat on it until July 25, 1914, when they finally shared a dossier of their evidence with the other powers of Europe (including their ally Germany). (Document No. 19). This is after they sent their ultimatum to Serbia on July 23, after France and Russia pledged complete support to Serbia, and long after any reasonable expectation for such a crucial document containing such crucial evidence should have been issued. At that point all the powers had well-anchored positions.

The dossier should have been ordered to be distributed to all powers by Franz Joseph on July 15, 1914, at the latest. But he was on vacation, five hours from Vienna, with his mistress.

Tuesday, July 8, 2014

Tsar Nicholas II and the Serbian "Blank Check"

Current prevailing wisdom is that Germany bears most of the responsibility for World War I due in no small part to the so-called "blank check" to Austria-Hungary, discussed in my prior post, as well as its expansionist designs. Perhaps this view is most cogently propagated by Max Hastings in a recent (outstanding) BBC documentary, A Necessary War.

Yet, Tsar Nicholas II issued a very similar "blank check" to Serbia in February of 1914, and in 1914 Serbia was a lawless state with a sordid record of assassinations, attempted assassinations and regicide. Indeed, there is powerful evidence that Russia actually funded the terrorist activities of Serbia, and at least was willfully blind to Serbian complicity in the assassination of Franz Ferdinand. And, there is little doubt Russia had its own expansionary designs, with its sights set on a warm water port in the Balkans. (Wawro, 51).

Therefore I contend that Tsar Nicholas and Russia bear more responsibility for World War I and its tragic consequences than the Kaiser and Germany.

This contention rests first on the nature of Serbia in 1914 as an outlaw state. Serbia's Head of Military Intelligence, Apis (a.k.a. Dragutin Dimitrijevic) and his activities (including a confession of leading the conspiracy to assassinate Franz Ferdinand) prove the point. This man was a one man assassination machine. He was leader in the military coup that unseated and murdered King Alexander in 1903. In 1911, he plotted to assassinate Austrian Emperor Franz Joseph. Apis was a founder of the Black Hand, a terrorist organization that sought Serbian expansion. He led the plot to kill Franz Ferdinand and his links to the Serbian Government implicated Serbia at the highest level. (Clark, 48).

Indeed, four days before the assassination in Sarajevo, Prime Minister Nicholas Pasic stated: "All our allies and friends, if they knew what our officers and Sargents are doing, would not only abandon us, they would stand on the side of Austria-Hungary." (Clark, 58-59). Simply put, the prime minister knew that "assassinations" were brewing in Serbia. (Id.).

More importantly, according to the Apis confession not only did he orchestrate the assassination but he did it with Russian complicity. (Taylor, 196-201). And, the Russian agent, Col. Artamonov the military attache in Belgrade, admitted in 1930 that Russia funded the Black Hand, even while denying foreknowledge of the Assassination. (Clark, 411-412).

So, fundamentally, Tsarist Russia backed a terrorist state--a far greater sin than Germany's blank check to Austria-Hungary. And, consider the nature of support. On Feruary 2, 1914, the Tsar told Prime Minister Pasic: "For Serbia we shall do everything." On July 27, 1914, the Tsar personally reaffirmed the blank check to Serbia stating: "but if, despite everything, there is war you can rest assured that Russia will never abandon Serbia to her fate."

On July 27, the only demand of Austria on Serbia that Serbia could not accept was for a joint investigation of the Sarajevo Assassination. Russia rejected Austria-Hungary's right to any such investigation and would not require Serbia to undertake such an investigation. Russia wanted war instead of an investigation.

More specifically, Russian Foreign Minister Sergei Sazonov told Austrian diplomats on July 8, 1914, that any demand for Serbian government support for an investigation was unacceptable, and that "no proof" of Serbian complicity would ever emerge. (Clark, 408-409). Further, Sazonov urged Serbia to reject outright any joint inquiry with Austria into the Sarajevo Assassination. (Id. at 455 and 465).

The bottom line is either Tsarist Russia knew of Serbian (as well as its own) complicity and desperately wanted it covered-up, or it was willfully blind to the truth and would rather plunge the world into war than learn the truth.

The Russian Empire under Tsar Nicholas was grossly negligent if not affirmatively lawless in its support of Serbia. The Russian disinclination to permit an investigation into the assassination is simply inexplicable.

Saturday, July 5, 2014

Kaiser Wilhelm and July 5, 1914

Historians furiously debate the causes and blame for World War I. Recent books continue to fuel the arguments. But all generally agree that the events leading to World War I became a runaway train that ultimately claimed nearly 20 million souls for reasons that can only be termed obscure. Basically, none of the protagonists and antagonists wanted the mad catastrophe that is World War I. Indeed, the war is widely considered the primordial catastrophe of the 20th century in that it spawned Nazism, fascism, communism and, ultimately, World War II with all its horrors.

In this post, I want to focus on Kaiser Wilhelm, who certainly contends for the dimmest bulb in the twilight of monarchies that dominated the European scene in 1914. On July 5, 1914 Kaiser Wilhelm issued the infamous "blank check" that ultimately drove Austria-Hungary to declare war on Serbia on July 28, 1914--triggering a virtual cavalcade of war declarations. The declaration of war was in response to Serbia's role in the assassination of Archduke Franz Ferdinand on June 28, 2014. This led directly to the cataclysm of World War I.

After telling the Austrian and Hungarian authorities that Germany would support their efforts against Serbia no matter what, the Kaiser went off on a three week cruise to Norway. During his absence the Austrian Hungarian Empire issued the famous ultimatum to Serbia. Serbia complied with the ultimatum to such an extent that the Kaiser himself concluded that Austria-Hungary had no cause for war. The Kaiser stated that the Serbian response was:
A brilliant solution—and in barely 48 hours! This is more than could have been expected. A great moral victory for Vienna; but with it every pretext for war falls to the ground, and [the Ambassador] Giesl had better have stayed quietly at Belgrade. On this document, I should never have given orders for mobilisation.
Nevertheless, Emperor Franz Joseph had already declared war on Serbia and all Europe was plunged into war. The irony is that Austria-Hungary was not about to got to war without German support. After giving it unconditional support and even goading Vienna into attacking, Germany's head of state only concluded that war was not necessary when it was too late to stop it.

All that needed to be done to avoid the coming catastrophe was to more closely monitor unfolding events and to insist upon close communication between Berlin and Vienna.

In the end, the blank check backfired on the Kaiser and, unfortunately, the rest of humanity.

All of this proves the folly of a monarchy and the dangers of concentrated power insufficiently constrained by law. One man's errors led to nearly 20,000,000 dead. The next post will discuss the further follies of monarchs leading to World War I.

Sunday, June 29, 2014

Mid Atlantic People of Color Legal Scholarship Conference (MAPOC) 2015 - Call for Papers


Call for Panel and Paper Proposals
The New Color Lines: What Will It Mean to Be an American?
The 19th Mid-Atlantic People of Color Legal Scholarship Conference (MAPOC)
West Virginia University College of Law—January 29-31, 2015
The Mid-Atlantic People of Color Legal Scholarship Conference (MAPOC) at the West Virginia University College of Law from January 29-31, 2015, shall explore the legal implications of the projected end of a nationwide white ethnic majority in the United States by 2043.  Selected papers from this Conference shall be published in the West Virginia Law Review.
 
When looking forward to the dawn of the twentieth century, Frederick Douglass and W.E.B. DuBois both famously evoked the problem of the “color line”—the continuing segregation and marginalization of ethnic minorities in the United States.  According to recent U.S. Census Bureau demographic projections, new color lines in the United States may emerge in the middle of the twenty-first century.  At present, non-white ethnic Americans are projected to outnumber whites in the under-5 and under-18 age groups.  In 2010, 15% of new American marriages were—according to traditional racial categories—interracial marriages.  What currently is the fastest growing U.S. ethnic group?  People who self-identify as “multiracial.” 

Although the United States remains extremely racially segregated, with the increasing number of interracial American families and the increasing reversal of white flight from U.S. cities to suburbs, could greater racial integration accompany this fundamental demographic shift?  Or will we be more racially isolated than ever?  How might this demographic shift impact what it will mean in the future to be an American?  In a 1998 university commencement address, President Bill Clinton commented:
No other nation in history has gone through demographic change of this magnitude in so short a time.  What do the changes mean? They can either strengthen and unite us, or they can weaken and divide us. We must decide. . . .  I believe [that this change is] renewing our most basic values and reminding us all of what it truly means to be an American.
In response to Clinton’s speech, Pat Buchanan wrote, “Mr. Clinton assured us that it will be a better America when we are all minorities and realize true ‘diversity.’  Well, those students are going to find out, for they will spend their golden years in a Third World America.”
MAPOC is proud to further legal scholarship through: (1) panel and paper proposals related to this conference theme; (2) a student writing competition with a $300/free-travel-to-the-conference first prize and two $100 runner-up prizes; and (3) its celebrated works-in-progress program that has helped publish more than 110 articles since 1995.
 
1.       Panel/Paper Proposals Related to the Conference Theme.  MAPOC seeks innovative panel and paper proposals exploring the legal implications of this projected demographic shift.  We welcome proposals from legal and interdisciplinary scholars.  Panel proposals should include a cover page with the working titles of each paper, the full name and institutional affiliation of each presenter, a current c.v. for each presenter (with current e-mail address and telephone number), and a description of the panel not to exceed 500 words.  Individual paper proposals should include the working title, the author’s full name and institutional affiliation, the author’s current c.v. (with current e-mail address and telephone number), and an abstract not to exceed 250 words.  Please e-mail panel and paper proposals (and any questions) to Bertha Romine at bertha.romine@mail.wvu.edu no later than September 15, 2014.  We shall get back to you no later than October 15, 2014.   Participants who wish to be considered for publication in the West Virginia Law Review must submit a full draft no later than December 15, 2014. 
2.       Student Writing Competition.  MAPOC is sponsoring a writing competition open to all currently enrolled law students of any level, J.D., LL.M., and S.J.D., at a U.S. law school.  Papers should be between 15,000-25,000 words in length and there is a preference for papers related to the conference theme but we will accept papers on other topics as well.  Please email submissions (and any questions) to erosser@wcl.american.edu no later than September 15, 2014.  The winning submission will receive $300 and travel expenses to attend the Conference.  The two runner-ups will receive $100 each.
 
3.       Works-in-Progress ProgramMAPOC’s long-standing works-in-progress (WIP) workshop provides a comfortable and constructive environment where authors can workshop scholarship in any stage of development to a dedicated discussant and supportive audience.  Please e-mail your WIP abstract (and any questions) to MAPOCWIP2015@gmail.com no later than November 30, 2014, to be included in the WIP program.

Saturday, May 24, 2014

In Search of Capitalism: Copenhagen


Denmark has long dominated world happiness rankings. Last fall The Earth Institute ranked Denmark first in happiness based upon surveys and  a United Nations commission ranked them first this spring based upon a statistical analysis of life expectancy, GDP per capita and freedom with respect to life choices.  I have previously blogged about various aspects of the Danish economy, here, with a particular focus on its high standard of living, high taxes and low inequality. As noted in that post, Denmark sports the highest taxes in the world as well as very high economic performance.

Since I have long believed that an economic system is only as good as the well-being of its people, I visited Copenhagen this month to see first hand what life in Copenhagen is like and to learn more about the law and economics of Denmark. I learned some amazing things.

For example, Denmark boasts excellent transportation infrastructure. I took a high speed train (112 mph) from my hotel to the airport in minutes. The ride was easy, cheap, fast, safe, clean and even fun. No taxi was needed at all. The airport also has a subway connection but my hotel was too far for that even less costly option. Copenhagen  Airport itself was one of the most convenient and modern airports I have ever seen. It is currently the 17th ranked airport in the world. We cleared security in less than 3 minutes.

I also traveled across one of the coolest bridges in the world into Sweden. Oresund Bridge won the Outstanding Structure award in 2002. The bridge exemplifies the outstanding economic infrastructure Denmark enjoys, ranking 13th in the world according to this recent survey.

Copenhagen also is a bicycle paradise. An astounding 52 percent of the population commutes by bicycle. I spent several days biking around Copenhagen and the paths are so safe (separate lanes for bikes separated by curbs and with independent bike traffic signals) that few even need helmets. I am convinced that if I lived in Copenhagen I would live longer and happier based upon their bicycle infrastructure alone. In short, massive investment in infrastructure greatly improves life for everyone in Copenhagen.

Denmark also excels in investing in its people. I met a young college student working at a brewpub. According to him Denmark offers free college education to all its citizens and even pays students to attend through a generous living stipend. We in the US know that such a program pays economically as studies show that the original GI Bill paid between 5 to 12.5 dollars in growth and for each dollar the government spent educating our World War II veterans. In Denmark free higher education is viewed both as an economic imperative as well as part of a well-functioning democracy. Educated citizens are less susceptible to calls by growth-retarding elites for excessive tax cuts and macro-economically pernicious deregulation.

The rich and powerful live quite well in Denmark too. I saw more Benzs here than in Beverly Hills and more Porsches than on Chicago's Gold Coast. Further, Copenhagen boasts the best restaurant in the world and  many other world class restaurants. So the very wealthy can enjoy a dynamic and competitive economy and need not view competitive capitalism based upon broad empowerment of all citizens with fear and loathing as they clearly do in the US.

Finally, Copenhagen passed my beer test with flying colors. One measure of a vibrant capitalist system is a rich delivery of consumer goods and services. In November of 1989, I visited East Berlin. The beer was awful. I literally could not finish a German dunkle--or any East German beer. Ever since I have used beer quality as a proxy for consumer choice and quality of consumer offerings. In Copenhagen, I visited many microbreweries (such as Brewpub Kobenhavn) and consulted with many experts about the best. They are world class brewers and easily can compete with the best in the US. Copenhagen has outstanding beer! 

So, I really think the US should take some lessons in capitalism on board from Denmark. First, high taxes are fully consistent with high growth and general happiness. Denmark certainly proves this point. Second, we should return to massive funding for higher education. Denmark proves that a GI Bill for everyone is affordable and even pays in all sorts of economic and political ways. Third, we should go back to our roots as a nation of powerful public investment (the GI Bill, the Interstate Highway System, the space program and the creation of the internet by DARPA) and search out ways to invest in green transportation that both pay for themselves and lead to better lives for all. Finally, we should understand that high inequality leads to under-funding of the public sector and massive transfers from the middle class to the very rich as recently seen in the US.

Friday, May 2, 2014

Corporate America Takes A Commendable Stand Against NBA L.A. Clippers Franchise Owner Donald Sterling

Donald Sterling, 1989
At this point, unless you've been hiding under a rock for the past week, we all have been exposed to L.A. Clippers owner Donald Sterling's racist rant to his mistress.  Sterling's vitriol racist tirade showed his ignorance and narrow-mindedness.  New NBA Commissioner Adam Silver was commendably decisive and swift in meting out his punishment to Sterling-a $2.5 million fine and lifetime ban from virtually all NBA-related activities

The unified statements of current and former NBA players helped galvanize Commissioner Silver's decision to act on the matter with dispatch.  I also think that economic pressure from corporate sponsors, who started to pull or suspend their corporate sponsorship of the Clippers, was instrumental in forcing the league and other owners to see the need to harshly punish Sterling for his behavior, and preserve the economic integrity and viability of the NBA.  In the past, on this particular blog, I've tended to come down hard on corporations for failure to demonstrate a measure of corporate social responsibility.  This time around, I must say, I'm very proud of the corporations that early on, without hesitation or blinking, pulled or suspended their sponsorship of the L.A. Clippers.  Corporate condemnation, coupled with current and former NBA player's statements and protest actions, have helped push forward the change needed in this situation-Sterling's exposure as a bigot and thankfully his eventual exist as an NBA franchise owner. 

My hat goes off to the following corporations who responded to Donald Sterling's bigotry, by pulling or suspending their L.A. Clippers sponsorships:
Thank you to the corporations listed above that did the right thing!  What are your thoughts?


*photo courtesy of cliffwildes/wikimedia commons

Monday, April 21, 2014

Say-on-Pay and Corporate Social Responsibility, By: Jennifer Roeske

     In the business section of today's New York Times, there is an article about the G.M. exhibits at this past weekend's New York International Auto Show and the fact that consumers who attended seemed unshaken by the company's decision to delay the recall of millions of potentially defective cars. Even if consumers are still confident, I expect that shareholders are not.  Today's Times printed another story reporting that the recent G.M. recalls will impact the company's bottom line and that profits are expected to decline sharply. Perhaps shareholders, understanding the connection between companies that deal responsibly with consumers and profitability, will communicate with the company about socially responsible behavior.

     Recently, a St. John's law student, Jennifer Roeske, wrote a short piece about shareholder involvement in corporate governance matters and the impact that involvement may have on pay decisions.  I am including her piece in this post.

          "Corporate social responsibility is controversial. While some believe it is necessary to help the communities that corporations affect and see it as a way to gain an altruistic public image, ultimately it affects shareholders’ bottom line. Some shareholders may want a greater return on their investment, and therefore disapprove of corporations deviating from a focus on the “bottom-line.” This is especially true for short term investors, or investors who depend on dividends to support themselves or their loved ones.
            Say-on-Pay is an internal mechanism that shareholders can use to let the corporation know whether or not they approve of its practices. It allows shareholders an “advisory vote” on the compensation of the top five executives of a corporation. In the U.S., experience has shown that the majority of corporations receiving a failing vote work strenuously to correct any deficiencies and to determine what issues shareholders had with the proposed executive pay package. Say-on-Pay opens the lines of communication between shareholders and the corporation, specifically the executives and the board. It gives shareholders a voice in corporate policy. This can include a corporation’s stance on corporate social responsibility. If shareholders are dissatisfied with the conduct of a corporation, they can vote down executive pay packages to show their dissatisfaction.
            The effectiveness of Say-on-Pay is a topic of hot debate. However, thus far in the U.S. companies have reacted to failed Say-on-Pay votes by fixing deficiencies and communicating with shareholders, eventually receiving a passing vote in the subsequent year. Last week, the financial post featured an article regarding the rise of theSay-on-Pay movement in CanadaWhile currently Canada does not require this type of vote, many companies have adopted them on their own. Additionally, the article discusses the weight these votes are carrying with boards; they are not ignored. Boards are increasingly aware of the risk of reputational damage if it ignores a shareholder vote. While the approval rating of packages on the whole is high, looking at the failed votes shows that shareholder opinion is taken seriously by corporations. Therefore, Say-on-Pay can be used by shareholders as a way of letting the corporation know their stance on corporate social responsibility."  

Saturday, April 19, 2014

The Virtues of Private Securities Litigation: An Historic and Macroeconomic Perspective


Financial market crashes of historic proportions and swindles and frauds of historic proportions go hand in hand. Two giants in the field of economics made essentially this point long ago: Harvard economist John Kenneth Galbraith in The Great Crash 1929 and MIT economist Charles P. Kindleberger in Manias, Panics and Crashes. Each of these books notes that fraud temptations expand during euphoric economic times (for the fraudfeasor as well as the victim) and that the revelation of market chicanery after the inevitable crash deals further blows to investor confidence causing rapid contraction in capital flows. Economic devastation follows. These books are classics and should be read by every business student and economic policymaker.

Recent evidence from the world of finance and economics demonstrates the wisdom of these works. Thus, a recent paper in The Review of Financial Studies found that firms engaged in fraud pretend to be legitimate and invest and hire excessively during the period of ill-gotten gains and then shed employees and investment when the inevitable crash follows, exacerbating the boom and the bust. MIT finance professor, Andrew Lo, states that booms induce "cocaine addict" responses where profits lead many to underestimate risks (including lawmakers and regulators). Another study found that the Private Securities Litigation Reform Act (which made securities fraud difficult to impossible to prove) led to more accounting chicanery, like that seen during the Enron and WorldCom era of massive securities fraud.

This is all consistent with the massive frauds underlying the subprime lending frenzy. In the largest settlement in history, JPMorgan Chase paid the US Government $13 billion for admitted material misrepresentations in connection with mortgages peddled to Fannie Mae and Freddie Mac as well as other investors. (Better Markets filed a challenge to this deal.). BOA paid $9 billion to settle similar claims just last month. The Wall Street Journal estimates that total bank exposure for bogus mortgage backed securities totals $85 billion. Other massive frauds committed by subprime lenders, including the megabanks, have consistently been noted on this blog. It is beyond cavil that much of the capital flowing into the subprime mortgage business came from duped investors, victims of Wall Street fraud.

The simple truth is that our lawmakers and the judiciary diluted enforcement of the federal securities laws pursuant to the PSLRA as well as a series of draconian cases and thereby gave the green light to more securities fraud. More securities fraud means more financial instability with all its consequent macroeconomic devastation.

We must restore private rights of action under the securities laws.

All of this sums up a law review article entitled The Virtues of Private Securities Litigation that I just posted on SSRN (available here for free download) that applies all of this evidence to the subprime debacle and concludes that there is an overwhelming case that PSLRA materially contributed to the crisis and that restrictions on private securities litigation should be lifted.

Here is the abstract:
In the wake of the Great Depression, the federal securities laws operated to mandate disclosure of material facts to investors and extend broad private remedies to victims of securities fraudfeasors. The revelation of massive securities fraud underlying the Great Depression animated the federal securities laws as investment plunged after 1929 and failed to recover for years. For over sixty years after the enactment of the federal securities laws, no episode of massive securities fraud with significant macroeconomic harm occurred. The federal securities laws thereby operated to facilitate financial stability and prosperity, in addition to a superior allocation of capital. Unfortunately, as memories faded and inequality soared, corporate and financial elites (with the active aid of lawmakers) launched a sustained attack upon private enforcement of the securities laws. Soon thereafter the horrors of the Great Depression returned and massive securities fraud triggered the Great Recession of 2008 as economists would predict. This Article argues for a rollback of the war on private securities litigation to at least the 1980s based upon history and economic science. This would at least restore sensible pleading standards, impose liability on all participants in securities frauds (including aiders and abettors) and allow the states to impose more demanding standards of liability on wrongdoers in financial markets.