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The Wages of De-Regulation

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Toyota's reported sins have given us the scandal du jour, but typically, the media zips past the basic problem. Toyota's safety irregularities pointedly illustrate instead the failure -- if not the virtual disappearance -- of regulation, a pattern begun in the 1970s as the nation dismantled and eroded the effectiveness of its Regulatory State. In bi-partisan fashion, its origins began with the Carter and Reagan Administrations, and then de-regulation accelerated and magnified under Clinton and both Bushes.

Toyota's problems predictably sent Congress scurrying to investigate, with three committees (at last count) vying for the inevitable accompanying sound bites. Both parties are well scripted for this task. But the inquiries miss the underlying cause of abandoned or ineffective regulation. That ineffectiveness now has been exposed, along with the rising costs and pain of moribund regulation, as we have seen with banking and health insurance. Now, revelations of dilatory regulatory actions (or lack of them) surround the diabetes drug, Avandia. Congress undoubtedly will offer another self-righteous inquiry, even as we learn again of its laissez faire oversight of the CIA.

Before the Toyota hearings, House Energy Committee investigators found documents revealing that the company saved more than $100 million after negotiations with federal safety regulators limited a 2007 recall. The company proudly hailed its gain in a document entitled "Wins for Toyota Safety-Group."

The Tokyo-based automaker is no stranger to expensive, extensive lobbying. Toyota has 31 registered lobbyists, including former members from the executive and legislative branches. The Washington operation, according to federal records, has spent nearly $25 million in the past five years, more than any other foreign automaker. Spending $25 million to gain $100 million is a no-brainer.

The company has spread its manufacturing operations to large parts of the country, and numerous state officials effectively lobby its needs. It also has vocal backing from its network of workers, suppliers, and dealers. The world's larger automaker has on a smaller scale neatly replicated the "defense industry" which has sprinkled itself around the nation, having some sort of facility and jobs in nearly every congressional district.

Most telling is Toyota's employment of engineers and officials from the National Highway Safety Administration, which some critics have faulted for its failures in regulating Toyota. The storied revolving door for regulators to enter the private sector, selling their expertise and knowledge, apparently has served Toyota well.

The problem is endemic to the relationship between government experts and the private sector. The door has been most evident when defense contractors heavily recruit military and Pentagon officials. At one time, we spoke of the "capture" theory, whereby interested parties in the private sector sent representatives to the various federal agencies where they served private needs. The vanished Interstate Commerce Committee typically had representatives from transportation, as well as industry lawyers and concerned labor officials. Now, the private sector has taken "capture" in a different direction, making use of bureaucrats that once regulated them.

As congressional hearings began on Toyota's problems, the New York Times reported on the company's extensive contacts with members of the probing committees, and, of course, company campaign contributions and the members' holdings in the company. Conflict-of-interest is a standard that somehow seems lost on Congress. Congress makes the laws, of course, and existing campaign finance legislation effectively legalizes bribery -- to use Sen. Russ Feingold's (D-WI) telling phrase.

The House Financial Services Committee, formerly the House Banking Committee, regulates banking and insurance. Once the domain of Wright Patman (D-TX), the vigilant Wall St. watchdog, it now is a cumbersome body of some 71 members, including 42 Democrats and 29 Republicans. According to, its current members have a career record of $77.6 million in contributions from banking, real estate, and insurance folks. Even first term congressman Gary Peters (D-MI has received $542,000. Spence Baucus (R-AL) has never met a reform he liked; he has netted $4 million. Sens. Chris Dodd (D-CT) and Richard Shelby (R-AL), leaders of the Senate committee counterpart are regular visitors to the trough of those they supposedly regulate.

The bi-partisan House Ethics Committee added a fitting coda to all this when it cleared seven members who helped direct hundreds of millions of dollars in no-bid contracts to those who had contributed substantial campaign contributions to the representatives. The committee's 305-page report said that if the members' earmarks were "criteria independent" of the contributions, they were fine. Now that sounds definitive; presumably, the "watchdogs" are free to rake in more contributions for further services.

The Ethics Committee's report, mixed with the Supreme's Court's decision in Citizens United v. Federal Election Commission removing any restraints on corporate campaign contributions, offers a volatile cocktail. Are we cooked, and do we have the 21st century version of the Marx Brothers' Duck Soup?

The oft-expressed desire for "change," for meaningful laws that recognize a mutuality of interest between capital forces and consumers, is lost unless Congress first reforms itself. The Supreme Court may be beholden to corporate interests, but Congress can rid itself of its ties to such groups. The Supreme Court has invoked the First Amendment to insure that corporations are free to contribute what they wish in politics. But Congress simply must say "no."

The Toyota imbroglio further underlines the need for reform, and the road to reform is effective regulation. The rush to de-regulate has been costly; consumers have suffered, and taxpayers have found that the passion for "small government" has resulted in huge deficits. Witness the ramifications of the Enron disaster, the gambles of big and small banks, the precarious state of airlines, AIG, and health care insurers. Imagine what those businesses spend to neutralize any effective regulation. And imagine the consequences of a reduced governmental role. Ironically, the role and ineffective of government has resulted in unanticipated ways for those lovers of "free" markets.