02/21/2012 01:43 pm ET Updated Apr 22, 2012

Death Penalty for Bankers?

Would you support the death penalty for bankers or corporate executives who cheat clients, customers or the government out of millions, or even billions, of dollars? That's the question that is raging through China these days as 30 year old multi-millionaire Wu Ying, once one of the richest women in the country, was sentenced to death for swindling $57 million from investors.

While $57 million sounds like chump change compared with the $65 billion that Bernie Madoff stole from investors, the Chinese take both economic crimes and the death penalty quite seriously. Around 4,000 people are executed each year in China, some for economic crimes, and the death penalty has the general support of the public.

The problem, of course, is the issue of selective enforcement. The crimes that Wu Ying is accused of committing -- including "underground banking" (lending money outside the officially sanctioned government system) -- are widely practiced in China and are only selectively punished. And the death penalty seems to be employed arbitrarily against a variety of citizens, including in some cases political dissidents.

Fewer than half the countries in the world -- and a minority of nations -- continue to apply capital punishment. The European Union bans capital punishment and the United Nations has passed resolutions calling for a global ban on the practice. Yet the United States and China -- arguably the most powerful nations in the world -- continue to employ capital punishment, although in markedly different ways.

The United States spends billions of dollars to enforce the death penalty. The state of Maryland, for example, estimated the cost of pursuing a total of five executions to be $186 million. California spends $114 million per year prosecuting and housing death row inmates, and estimates that the cost of thirteen executions over thirty years has been $250 million per execution. China, on the other hand, which dispenses with much of the niceties of due process, can say that it has a much more streamlined and cost-effective system.

What about the effectiveness of the death penalty as a deterrent? People have argued for years that the death penalty can be an effective deterrent against crime, but the facts certainly don't do much to support that argument. Extensive research into the "deterrence effect" show that it has very little weight. Studies show that most murders, for example, are committed in the heat of passion or under the influence of drugs or alcohol. The likelihood of execution is one of the last things that murderers consider when they kill someone.

The fact that China employs the deterrence argument in the case of economic crimes raises an interesting question for Americans, who have generally accepted the policy of giving white-collar criminals who steal billions nothing more than a slap on the wrist. Even though a few of the most egregious offenders have ended up behind bars, an argument could be made that if they had committed the same crime in China, the Bernie Madoffs of the world would be facing a firing squad. And perhaps a few Wall Street bankers would be asking for a last meal.

The truth is that the deterrence argument probably doesn't work much better for economic crimes than it does for murder or other capital offenses. While the Chinese government hopes to send a strong message to the business community to play by the rules, the fact is that Wu Ying was clearly singled out because she crossed some powerful people in the Chinese power structure. Although her conviction -- and possible execution -- will send a chill through the hearts of Chinese entrepreneurs, it will likely do little to stem the practice of underground banking and loan sharking, not to mention the greed and corruption of elements of Chinese society.

There may be a lesson for Americans here. The outcry over the minimal -- or non-existent -- punishment of American bankers and Wall Streeters is clearly justified. The idea that the rape and pillage of the American financial system, not to mention the American public, by a bunch of overpaid bankers and corporate executives, who after getting a bailout from American taxpayers rewarded their misdeeds with millions in bonuses, is galling to say the least. And it is tempting to contemplate sentencing these criminals to life in a prison cell, or even an ignominious death.

However, as in China, the solution to the problem is not simply to lock up or execute the offenders, although justice would certainly dictate much harsher punishment than was meted out to those bankers whose greed and deceit cost us so many billions and nearly wrecked our financial system. No, the answer is to reform the system so that criminals can no longer benefit from their misdeeds. And only the federal government has the power to carry out those reforms.

The Republicans have argued that government regulation of the financial industry will stifle the free market, but nothing could not be further from the truth. The reforms during the administrations of both Theodore Roosevelt (a Republican) and FDR (a Democrat), which regulated financial activity in new and unprecedented ways, was greeted with dire warnings from the financiers and robber barons about the collapse of the American economy. However, the reforms actually led to unprecedented growth in financial markets and the American economy.

The Obama administration has taken a few tentative steps in the direction of greater regulation of financial markets and institutions, but much more needs to be done. However, as long as politicians depend on the good graces of wealthy people and institutions to stay in office, real reforms will never take place, and those who game the system, or even violate the law, will swindle the rest of us with impunity. We may long to put the bums in jail and throw away the key, but until the government becomes an honest, impartial referee in the financial markets, there will be more swindlers taking the place of those we locked up.