[anybody know about the letter that's mentioned?] [NYTimes] February 12, 2002 Business Versus Biznes By PAUL KRUGMAN Memo to critics of the media's liberal bias: the pinkos you really should be going after are those business reporters.
Even I was startled by the tone of the Jan. 21 issue of Investment News, which describes itself as "the weekly newspaper for financial advisers." The headline was "Paul O'Neill's Sweet Deal"; the blurb was "IRS backs off closing loophole, averting tax liability for execs and Treasury chief." It's not really news that the Bush administration likes tax breaks for businessmen. But two weeks later I learned from The Wall Street Journal that this loophole is more than a tax break for businessmen: it's a gift to biznesmen. And it may be part of a larger pattern. Confused? In the former Soviet Union, the term "biznesmen" (pronounced "beeznessmen") refers to the class of sudden new rich who emerged after the fall of Communism - and who generally got rich by using their connections to strip away the assets of public enterprises. What we've learned from Enron and other players to be named later is that America has its own biznesmen - and that we need to watch out for policies that make it easier for them to ply their trade. It turns out that the "sweet deal" Investment News was referring to - the use of "split-premium" life insurance policies to give executives largely tax-free compensation (you don't want to know the details) - is an even sweeter deal for executives of companies that go belly up: it shields their wealth from creditors, and even from lawsuits. Sure enough, reports The Wall Street Journal, former Enron C.E.O.'s Kenneth Lay and Jeffrey Skilling both had large split-premium policies. So what other pro-biznes policies have been promulgated lately? Last year, both houses of Congress passed bankruptcy reform bills; a reconciliation conference scheduled for Sept. 12 got put off. Now those bills are getting another hard look. They toughened the law for ordinary families. But the bills also included a provision that would have made it much easier for companies to transfer assets to "special purpose entities," putting them out of creditors' reach. To be fair, there are sometimes sound business reasons for transferring assets off a company's books. But now that we know about Chewco and JEDI and LJM and all those other "entities" that Enron executives used to siphon off cash, you have to wonder whether the legislation would really facilitate business, or whether it would mainly serve the interests of biznes. That, at any rate, is what 35 law professors argued in a Jan. 23 letter sent to Congressional leaders. "If this goes through," declared Elizabeth Warren of Harvard Law School, "the incentive for corporations will be to move more and more transactions off the books." My wife (who is also an economist) was more succinct: "This turns us into Russia." The issue of business versus biznes is not one that divides neatly along party lines. Democrats as well as Republicans have taken money from lobbyists, and (like the Democratic National Committee chairman, Terry McAuliffe) profited personally from investments in companies that later collapsed. And the new bankruptcy laws had overwhelming support on both sides of the aisle. But right now the Bush administration is busily doing the most important thing a government can do to promote biznes: nothing. So far Harvey Pitt, the chairman of the Securities and Exchange Commission, has failed to propose any meaningful reform in the lax rules that made Enron possible. And as Floyd Norris noted last week in this newspaper, the Bush administration has balked at providing a significant increase in the S.E.C.'s budget - even though "it pays far less than the private sector and, more amazingly, less than other federal regulatory agencies." The administration's curious passivity could be a simple matter of faith in the "genius of capitalism," as Paul O'Neill put it. But as many reporters have noticed, several high- ranking administration officials had prior business careers that, in retrospect, look more like biznes careers. As Molly Ivins explained at length in her book "Shrub, the list includes George W. Bush himself. It's still possible that the administration will wake up and realize that we seriously need reform. But the impression I get from the business press is a rising tide of dismay, a sense that an administration everyone expected to be pro-business is turning out to be pro-biznes instead.
