oversight – Sheila Kennedy

Maybe Government Shouldn’t Just “Get Out Of The Way”

A number of years ago, I read a book by a well-regarded libertarian academic, arguing against most government regulation. I don’t remember a great deal of it, but I do vividly recall his argument against the FAA’s assignment of air lanes (and actually, the agency’s very existence): he argued that the choice of airplane paths should be left to the airlines. Once a couple of planes collided midair and they got sued for big bucks, airline CEOs would get together to work out routes and ensure that it didn’t happen again.

Maybe I’m just a weenie, but I’d prefer not to be on one of those planes that collided.

I thought about that argument when I read the Sunday New York Times article attributing the two Boeing disasters to lax government regulation. Evidently, the officials charged with oversight allowed Boeing to “self-certify” the safety of many of its components and processes–as a result, regulators had never independently assessed the risks of the software known as MCAS when they approved the plane in 2017.

When you put the fox in charge of the henhouse…..

It has been an article of faith of the GOP that there is just too much government regulation–their default position is that most state intrusion into the marketplace is illegitimate and unnecessary. They seem unable to comprehend why government regulations were ever created.

Not long after the events that triggered the Great Recession, the New York Times ran a column by Edward Glaeser, in which he discussed the importance of both the public and private sectors in sustaining a workable market economy. Among his points:

Markets are built on both private entrepreneurs and public law enforcement. For centuries, investors have relied on courts to enforce contracts. Who would buy a company’s shares if the law didn’t impose a fiduciary duty on their issuer? Every person with a bank account in the United States relies on the government to protect his or her assets. Taxpayers also trust that the government can make the costs of overseeing the banking system reasonable.

So who failed? Certainly, the shenanigans on Wall Street remind us that capitalists are not angels, and that unchecked, their mischief can do much harm. But the point of financial market regulation was to ensure that misbehavior would not imperil the entire system.

Are some regulations onerous? Stupid? Unneeded? Sure. But even bigger problems emerge from inadequate regulation and/or enforcement.

Glaeser was writing about the importance of government’s role in financial oversight, an issue that Elizabeth Warren has consistently raised. It takes only a short walk down memory lane to remind us of numerous others.

The BP oil spill in the Gulf has been attributed to inadequate inspections of drilling machinery; the collapse of the I35W bridge was attributed to deficient government infrastructure inspections; the mine collapse in West Virginia occurred because regulators failed to cite and punish the owner for refusing to install required safety equipment; the Enron, Worldcon and Madoff scandals were enabled by a lax SEC.

As a consequences of such inadequate oversight, thousands of people were harmed. Hundreds died.

We rely upon the Food and Drug Administration to ensure that our medications are safe and effective, our chickens free of e coli. (As I tell my students when we discuss regulatory processes, I’d just as soon not have to test the chicken I buy in the supermarket myself when I get it home.)

We rely on the Consumer Product Safety Commission to ensure that the toys we buy our children are free from toxic paint and dangerous parts.

We rely on the FAA to independently inspect the aircraft we fly in, and to regulate those flight paths so that we don’t meet midair.

Caveat emptor is no substitute for competent government oversight–and right now, Americans do not have a competent government.

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Regulatory Capture

Those of us who teach classes in public administration routinely include lessons on what is called “regulatory capture.” That’s jargon for the “coziness” that often develops between regulators and those whom they regulate.

The more technical and “exclusive” the area being regulated, the easier it is for employees of the government agency charged with oversight, and the representatives of enterprises they are overseeing to become comfortable with each other, and to develop a trusting relationship.

The concern, of course, is that it gets too trusting, and that the oversight intended to protect the public becomes too lax.

Regulatory capture is generally not intentional–familiarity leads to comfort, and things slip between the cracks. But of course, there are also situations in which lax enforcement is, shall we say, more calculated. The question being asked in the wake of two Boeing aircraft crashes, and reports that the FAA allowed Boeing to “self-certify” the safety of its aircraft, is: which kind are we dealing with?

According to the Washington Post, Boeing and the government have long had a “special relationship.”

As a top economic adviser to President Bill Clinton, Dorothy Robyn was charged with advancing America’s aerospace industry.

Part of the job was not choosing sides between companies. But there was one exception: Boeing.

“It was the one company for which I could be an out-and-out advocate,” Robyn said Thursday. In competitions between American companies, the administration as a rule remained neutral. But Boeing’s commercial airplane division employed tens of thousands of Americans and its prime competition, Airbus, was in Europe.

“In the engines business, you can’t choose between GE and Pratt & Whitney. With Boeing, that’s it. They’re ours. It is the only sector where we have a de facto national champion and you can be an out-and-out advocate for it.”

That “special relationship” has existed for decades. Boeing makes the planes that fly as Air Force One. A former Boeing executive, Patrick M. Shanahan, was tapped by Trump to be acting defense secretary after the resignation of Jim Mattis, despite the fact that he had no prior government experience. Boeing’s business is so dependent on federal government policies that the company spent $15.1 million last year on approximately 100 Washington lobbyists.

Boeing booked a record $101.1 billion in 2018 revenue, up 13 percent from the year before, and analysts say about a quarter of that was from government contracts. In 2017, Boeing received an estimated $23.3 billion in taxpayer-funded contract awards, not including classified military funding. And its joint ventures with Lockheed Martin and Bell Helicopter Textron received $2.2 billion and $2.5 billion, respectively, in federal contract funding in 2017….

Daniel Auble, a senior researcher at the Center for Responsive Politics, called Boeing “an excellent illustration” of the “the undue influence of money in our political system.”

In the wake of the two crashes, Congress has demanded answers about FAA oversight of Boeing, including why the FAA didn’t ground the company’s planes until regulators in Europe, China, Australia and elsewhere had done so.

Some FAA personnel have complained that the agency has given Boeing too much responsibility for its own safety checks. Concerns about a lack of rigorous oversight–especially as reports have emerged about Boeing’s “rush” to beat a rival and deliver these aircraft–is only the most recent evidence that warnings about the company’s “cozy” relationship with the government are not misplaced.

The close relationship between the Pentagon and Boeing is part of a long-standing revolving-door culture in which senior defense officials move back and forth between jobs in government and with defense contractors.

In 2004, Darleen Druyun, a high-ranking Air Force procurement official, was sentenced to prison after she admitted that she approved a purchase of 100 refueling airplanes from Boeing at an inflated price of about $20 billion to enhance her job prospects with the company. She also leaked proprietary pricing information from a competitor and helped Boeing secure a separate $4 billion as a thank you for hiring her daughter and future son-in-law.

According to Bloomberg (link unavailable)

In one previously unreported case involving a separate aircraft program, a Boeing engineer sued three years ago, claiming he was fired for flagging safety problems that might have slowed development. Boeing has denied the claims.

If the investigations now underway find evidence that regulatory oversight was lax–whether due to an excess of trust or something worse–it will be yet another item on the growing list of reasons other countries no longer feel they can trust us.

As airlines cancel several billion dollars of orders for Boeing airplanes, and the company’s stock tanks, the livelihoods of Boeing’s 153,027 employees are at risk. The economic consequences for the whole country could be very ugly.

America is about to get a lesson that our anti-government Republicans won’t like: effective regulation and oversight are essential to economic stability and growth, and only government can provide it.

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Penny Wise, Pound Foolish…Again

Here’s a great example of what happens when a fixation on keeping taxes low no matter what (yes, Governor Pence, I’m looking at you) ends up preventing authorities from engaging in oversight that would actually save taxpayers money.

The IBJ has reported that

Local governments will see fewer audits due to a recent change in Indiana state law.

The State Board of Accounts used to audit cities and counties every year, and audit school corporations every two years. Now those audits will be conducted every four years unless there are red flags.

And why is the frequency of audits declining? Budget constraints.

But budget limitations and the sheer number of entities that require auditing means there’s too much work and not enough people to do it, Caldwell told The Muncie Star Press….

Local officials confirmed this week that Delaware County and the city of Muncie haven’t been audited for three years.

State audits are important because they can uncover costly financial mistakes, wrongdoing by officials and other issues that local governments can correct–ideally, before the error or wrongdoing has cost significant amounts of money.

In the not-so-distant past, audits by the State Board of Accounts have found problems with the Muncie Sanitary District’s finances and then-Delaware County Treasurer John Dorer, who resigned in February 2015 after pleading guilty to a charge over the mishandling of funds. It would seem prudent to continue supervision of Delaware County to insure that these problems are not continuing, rather than taking a three-year hiatus.

There’s an axiom from the criminal law literature that is relevant here; it is the certainty of punishment, rather than the severity, that deters criminal behavior. (In other words, if you are considering a burglary, and the punishment is 20 years, but the likelihood of getting caught is 5%, the deterrent effect is negligible. If, however, the punishment is 5 years, but the likelihood of getting caught is 95%, the deterrent effect is considerable.)

Most reasonable people would not reduce police patrols in a previously lawless neighborhood and expect crime to go down. Same principle.

The Pence Administration is “saving” us money by keeping taxes (and revenues) low. In the process, it is issuing an unintended invitation to embezzlement and mismanagement. I’d be willing to wager that taxpayers will end up losing much more money than the administration is saving by reducing the mechanics of oversight.

But then, as a former student of mine who was working for the administration until he quit in disgust puts it, this Governor’s office has zero interest in actually governing.

That’s becoming more obvious with every passing day.

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