The circus comes to Sacramento

I happened to be downtown yesterday, and there were quite a few news trucks gathered at the Capitol building. If anyone hasn’t been following the antics of the California State Senate, I strongly recommend that you start. Not only is it a canary in the coal mine in terms of the budget issues faced by governments everywhere, but it is political theatre of the highest grade. At issue is the ever-worsening budget deficit, which is currently at roughly $40 billion for the period from July 2008 – June 2010. And yes, I know that period already started last summer. We all know that.

Essentially there is a standoff in which a minority of Republicans are holding the line against a proposed budget that involves tax increases and therefore must pass with a 2/3 supermajority. The Senate leader kept them literally locked in their chamber for most of the long weekend, but yesterday let them go home and get their toothbrushes. Literally. There is a great picture (with an even better caption) of one senator walking into the chamber with a sleeping bag under his arm. And then, in the early hours of  the great Senate Sleepover of ’09 (Part 2), the GOP caucus ousted their leader, who had crafted the proposal over which they are all being held hostage.

Elsewhere in the news today, there is an interview with one of the people who want to be governor in 2010: State Insurance Commissioner Steve Poizner, who made his fortune in Silicon Valley back in the good old days when that was still possible. It is an instructive little chat.

What really jumped out at me was this comment: “I know how venture capitalists think. In the global economy, money moves in a nanosecond to maximize returns. Business people and investors can run the numbers to see what works. What they can’t deal with – what drives them completely bonkers and out of state – is when the regulatory structure can’t give them an answer in a reasonable amount of time.”

I’m going to heroically resist the urge to rant about how we should look forward to the departure of such vultures, which will provide us with an opening to build an economy that works in the long run (now I’m taking deep breath, visualizing puppies) and instead focus on the second part of his statement. He raises a really excellent point.

Regulation and bureaucracy is a poor solution to the problem of how to protect the public from the ravages of business, and I have no reason to doubt that these have contributed to the flight of investment (and tax revenue) that plagues California. It is one thing to be told you can’t pour DDT in the river. It is another to be told maybe you can if you fill out the right forms. If a regulation is needed, it should be clear and quickly applied. Government is not famous for either of these things.

So what if there were a way to essentially privatize regulation?

At first glance, this might seem like an utterly moronic Bush-era crackpot idea, but it is actually of Clintonian vintage (and also British). Way back in 1997, Terry Thomas wrote an article in the Journal of Cooperative Studies (vol 30, no 1) called “Inclusive Partnership: The Key to Business Success in the 21st Century.” He started right out with a criticism of “the misinformed idea that selfish behaviour – whether as an individual or a company – was in the public interest.”

Having got that out of the way, he went on to examine the roles of groups that each have a stake in the running of a business: shareholders, customers, staff, suppliers, the community, and past and future generations. He describes a board of directors as responsible for “balancing the needs and aspirations of each partner against each other an across time.” Sounds totally woowoo and unworkable, yes?

Only at the time of his writing, Mr. Thomas happened to be the Managing Director of The Cooperative Bank plc., which is one of the UK’s largest banks and has recently been winning customer satisfaction surveys just on the basis of its boring bank skills. But what is most important about this outfit is its very firm and dramatic stand on ethics, which was first developed through customer input in 1991, and was just updated to accompany a major marketing push by the bank’s parent organization, The Co-operative Group.

Whatever comes out of California’s budget impasse, it is safe to say that there will be dramatic cutbacks in nearly everything. Needs will be unmet and the people who formerly worked to meet those needs will be laid off, creating more needs. In some cases it will be possible to put skills back to work outside of the wobbling goverment and the fleeing investor class.

In the short run, we need to find a way to keep meeting peoples’ needs in the absence of a smoothly-functioning system of taxation and government service. In the long run, we need to find ways to build a business model that doesn’t rely on the antagonism of investors and residents.

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