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The Payoff Society

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Last November, The Washington Times published an editorial by Marilyn Quayle entitled “Americans are Demanding Relief from Overzealous Regulators.” Ms. Quayle pointed out: “To comply with federal regulations alone costs between $300 and $500 billion a year, or $4,000 to $6,000 for every working man and woman in America. We spend 6.6 billion hours complying with federal paperwork requirements.”

In the November 7, 1994, issue of Newsweek , in an essay entitled “The Regulatory Juggernaut,” Robert Samuelson wrote:

The totality of federal regulations now comes to 202 volumes numbering 131,803 pages. This is 14 times greater than in 1950 and nearly four times greater than in 1965. There are 16 volumes of environmental regulations, 19 volumes of agricultural regulations and 2 volumes of employment regulations.

On November 15, 1994, the White House published a 1,700-page directory of new federal regulations. The document was supposed to have been published before the midterm elections but was delayed for fear of voter reaction.

A couple of years ago, I was at a banquet sponsored by a Washington, D.C., think tank. I was seated next to Newt Gingrich, the new speaker of the U.S. House of Representatives. During dinner, I remarked to him:

I grew up on the Texas-Mexican border. The Mexican political system is actually much more honest than the American political system. In Mexico, citizens pay bribes to government officials to get around the myriad of government rules and regulations. The person who pays the bribe knows exactly what he is to receive in return. The government official who accepts the bribe knows exactly what is expected of him.

But here in the U.S., citizens have to play games. We disguise bribes as campaign contributions, speaker’s honoraria, junkets, and so forth. The government official must guess at what is expected of him. And the citizen, after sometimes paying huge sums of money, must hope that the official guesses correctly.

Mr. Gingrich was indignant. He stated that American public officials act honorably and that their votes and decisions are not corrupted by the payments of money and benefits received from the citizenry.

But Mr. Gingrich is wrong. The pretense for the regulated economy is consumer protection. But the real reason for the regulated economy is to provide a means to funnel cash and other benefits into the hands and pockets of American politicians and bureaucrats.

Last November, The Wall Street Journal reported that Commerce Secretary Ron Brown personally introduced Loral Corporation Chairman Bernard Schwartz to Zhu Gao Feng, vice minister of China’s Ministry of Post and Telecommunications. The ministry plans to spend billions of dollars on Chinese infrastructure. According to The Journal :

Mr. Schwartz was ecstatic about Mr. Brown’s unabashed advocacy . . . adding later that he expects the trip to bring Loral as much as $1 billion of Chinese contracts in the next 10 years.

The Journal pointed out that Mr. Schwartz had written a $100,000 check to the Democratic National Committee, which Mr. Brown headed before joining the Clinton Administration. That was in addition to the $73,000 that Mr. Schwartz has donated to Democratic interests since 1991.

While there is nothing illegal about the contributions and the special treatment accorded Mr. Schwartz, he himself conceded, “I think that political involvement does enhance the visibility of a corporate executive, and to the extent that visibility is enhanced, access is enhanced as well.”

The Journal article also observed that about one-third of the companies that Mr. Brown has championed have been substantial contributors to the Democrats during the last two elections.

Like Mr. Gingrich, Mr. Brown vehemently denies that cash payments to public officials buy preferential treatment. But also traveling with Mr. Brown have been representatives of Bell Atlantic Corp., which has donated $198,625 to the Democrats since 1991; Sprint Corp., which has contributed $94,200 to them since then; Grigsby, Brandford & Co., whose chairman gave the party $20,000; Occidental Petroleum Corp. ($109,014); and U.S. West Inc. ($60,000).

There is also Mike Espy, Secretary of Agriculture. Mr. Espy, who has announced his resignation, is accused of accepting gifts and services from companies regulated by the department he heads. Mr. Espy is accused of accepting free travel, football tickets, and lodging from Tyson Foods Inc., an Arkansas-based company with close ties to Bill and Hillary Clinton.

And, of course, there is Hillary Clinton’s remarkable success with commodity trading. She earned $100,000 in a series of trades that rivaled the success stories of some of Wall Street’s most successful traders. Presumably, these profits will continue to be investigated by Congress and the Whitewater independent counsel. Ms. Clinton is entitled to the presumption of innocence accorded to all Americans. But we cannot eliminate the possibility that these profits were a disguised bribe by which some unknown payer desired preferential regulatory treatment in the future.

Unfortunately, the racket does not stop when a public official leaves office. All too often, government officials become well-paid lobbyists whose job is to secure preferential treatment for their clients. For example, former Maryland House of Delegates Speaker R. Clayton Mitchell Jr. was recently hired by Baltimore Gas and Electric to oversee the utility’s lobbying efforts in Maryland.

Another example: As a New York state senator, Linda Winikow hounded New York power companies over soaring rates. In 1984, she switched sides by accepting a $100,000-a-year lobbying position with Orange and Rockland Utilities. According to an article in the October 16, 1994, issue of The New York Times :

Ms. Winikow channeled hundreds of thousands of dollars, much of the total from gas and electric customers’ monthly bills-to the campaigns of officials like Govs. Mario M. Cuomo and Jim Florio and Senator Joseph J. Lieberman, Democrat of Connecticut. Mrs. Winikow wined and dined officials like the state regulators who are supposed to rule impartially on rate increases, totaling a $62,000 bill for entertainment in 1992 alone.

In late 1994, Ms. Winikow pled guilty to grand larceny and bribery.

And the problem exists not only on the national level. For example, last year, a Washington, D.C., police officer, George R. Hardy, was charged with taking bribes from street vendors in exchange for choice vending spots. He pled guilty to accepting a $5,000 bribe from a vendor.

The temptation is to condemn these people for taking the bribe or other benefit offered by the person who is being regulated. But perhaps we ought not to be so hasty in issuing the condemnation.

What is a government regulation? It is a law-enforced by coercion or the threat of coercion-that interferes with peaceful behavior. In other words, people want to engage in a certain activity that does not involve violence or fraud against someone else; and the government uses a regulation to prohibit them from doing so.

Thus, a bribe simply enables people to act in a way that they would have acted in the absence of the regulation. When public officials act “honestly” by refusing a bribe, the will and desire of the actors are thwarted.

When I lived in Laredo, Texas, I was an avid bridge player. I was also a bird hunter. One day, my bridge partner and I were traveling to Monterey, Mexico, to play in a bridge tournament. We were stopped at Mexican customs in Nuevo Laredo. The customs official asked me to open my trunk. I did so and-ugh-there were a couple of boxes of shotgun shells that I had failed to take out of my car since my last hunting trip.

The official informed us that it was illegal for us to bring ammunition into Mexico. He said that it would be necessary for us to return to the U.S., get rid of the shells, and then return to Mexico. We told him that this would make us late to our bridge tournament in Monterey. We asked him if we could simply throw the shells away in the nearby trash can. He advised us that that would be against the law.

So, we made him an offer. We offered to pay him $50 plus the shotgun shells if he would let us go on. He agreed. The bribe was paid, and he honored his part of the bargain. We made it to the tournament on time.

Should we be condemned for paying the bribe? Should he be condemned for making a few bucks by looking the other way and permitting us to do what we wanted to do?

What is the real solution to this problem? Some say, “We need to get better people in office-people who will resist the temptation to accept bribes, payoffs, campaign contributions, speaker’s fees, and so forth.” But every time new people come into office, the problem repeats itself. We are all human. And all of us have a difficult time resisting temptation. As Lord Acton observed in his famous dictum, “Power tends to corrupt and absolute power corrupts absolutely.”

What do conservatives offer as the solution? Their answer to all of this is the same solution proposed by Bill Clinton and his cohorts: “Reform the system.”

But conservatives and leftists are wrong. The solution is not to reform the system. As long as government has the power to regulate peaceful activity, the bribes, payoffs, campaign contributions, and speaker’s fees will go on and on and on.

Do you ever see church ministers trying to lobby or to make contributions to U.S. Supreme Court justices? No. The reason is that the Supreme Court does not have the power to regulate religious activity-thus, there is no reason for ministers to curry favor with them. In fact, for the same reason, one very rarely sees ministers lobbying Congressmen.

But suppose Congress had the power to regulate religious activity. You would then see ministers engaging in the exact same activity that businessmen are engaged in-lobbying, bribes, campaign contributions, and so forth.

Thus, we must never fall for the siren song provided by leftists and conservatives-the siren song of reform, reform, reform. There is one-and only one-solution to the payoff society: a total separation of the economy and the state. Just as our Founding Fathers separated church and state, so it would be with economic activity and the state.

Isn’t it sufficient simply to reduce or repeal certain regulations? No, because as long as a new Congress or new state legislature can reenact the regulations, the incentives to “get your person in office” and to cater to those already in office remain in place. And the chaos arising from the unpredictability also remains in place.

No, what Americans ultimately need is to constitutionally prohibit government from regulating peaceful activity. In other words, the power to regulate must be removed from government through constitutional amendment. Thus, an amendment to the United States Constitution would read as follows: “Neither the national government nor the states shall pass any law respecting the regulation of commerce or abridging the free exercise thereof.”

Only in this way can we permanently privatize the regulators. Only in this way can we end the payoff society. Only in this way can we achieve economic freedom.

Mr. Hornberger is founder and president of The Future of Freedom Foundation .

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    Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.