Government and Business Scandals: Product of Democracy?

August 01, 1993|By THOMAS V. DiBACCO

Once more, the newspapers are replete with stories about government and business scandals.

* Rep. Dan Rostenkowski, D-Ill., is under scrutiny in what might be called Postalgate, in which embezzlement in the House Post Office is alleged.

* Speaker of the House Tom Foley, D-Wash, has been called to task by the Wall Street Journal for making a lot of dough in the stock market, specifically, in IPOs (initial public offerings), thanks to a chummy relationship with a high school friend and broker.

* In the world of business, a new biography suggests that Walt Disney wasn't snow white ethically.

* And in the criminal side of entrepreneurship, Lincoln Savings tycoon Charles Keating Jr. was sentenced last month to 151 months in prison and given a $122 million fine for fraud and racketeering violations.

Bad as these transgressions might seem, however, consider the untoward trend in academe in recent years, namely, the development of unctuous ethics courses for business and government students.

Arising in the wake of Watergate and the passage of the Foreign Corrupt Practices Act, and getting new sustenance from political scandals (the resignation of House Speaker Jim Wright, D-Tex., in 1989, the Senate trial of David Durenberger, R-Minn., in 1990), the courses and their textbooks are preachy with case studies that evidence clear-cut wrongdoing by politicians and corporations and theoretical solutions that ignore the historic context of American practices.

American history confirms the evolution of a consensus that has compromised government and business ethics in favor of freedom.

To be sure, it didn't start out that way. The American colonies developed under a system of government and private enterprise that was elitist. Only the well-to-do had the property qualifications to run for office. Rigorous standards in business were imposed, in part by religious institutions, but mostly by government and associations of merchants and craftsmen.

The result was a government that was unimpeachable (can you think of any indiscretions by George Washington or John Adams?) and an economy that was stable and modest in growth but not risk-oriented and democratic.

By the 19th century, social forces coalesced to fashion a much different economic environment. The acquisition of enormous territory and its division into states competing for people, the large growth in population and immigration, and the rise of political platforms championing the common man led to a democratic social order little concerned with regulation and responsibility.

What mattered most was the opportunity for any person to enter politics. The first commoner, Andrew Jackson, was elected president in 1828, and name-calling and scandals soon punctuated both local and national politics. So, too, did democratic reform -- for the insane, criminals, women, and minorities.

Also important was the freedom to pursue business activities and the recognition that tremendous leaps in industrial growth could be made if the technological genius of the creative person could be tapped. What is more, this freedom led to the type of risk-taking that ensured volatility in the form of booms and busts. Little wonder that two of the most important legislative acts in the early 1800s dealt with democratizing the patent system (1836) and liberalizing the bankruptcy law (1841).

From one perspective, this democratic environment paid off handsomely. The United States was the first nation to democratize education on a local level with the common elementary school, then high school, next on a national level with the establishment of land grant colleges and universities. American economic development mushroomed, especially after the Civil War.

On the other hand, economic democracy meant that anyone could enter business, even the incompetent and unscrupulous. Law, medicine, and education experienced the same dilemma but were able to establish a "credentials" system by the late 1800s.

Government and business had a much more difficult time weeding out the bad boys. Recall that the Constitution provided only minimal criteria for office-holding on a national level (you didn't even have to hold a law degree to be appointed to the Supreme Court).

Trade associations, chambers of commerce, and civic clubs such as Rotary and Kiwanis attempted to bring about higher business standards; however, it was not until the early 1900s that federal laws and self-regulation blossomed, and then in a compromising way. The goal was to regulate government and business so as to ensure more responsible conduct and better products, but at the same time to avoid the types of proscriptions that would stifle creativity, growth, and easy entry by politicians and businessmen-to-be.

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