While talking to Elephant today, I repeated my assertion that what we need are better laws, not more of them. The simpler a law is, the harder it is to find loopholes in it; what we need are the right principles rather than approximately justifiable rules.

Elephant said the only sort of "business restructuring" law we would need would be the guaranteed right to each worker to own a piece of their employing corporation (call it mandatory profit-sharing) and that this would eventually eliminate all sorts of problems. I think it's interesting and I'm all for it (for whatever that's worth), but it's just a starting point. It can't address all of the problems we have with business.

While I was writing this post, there was a comment from "Raging Pundits" which said, in part, [footnotes mine]
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[B]usinesses are less prone to corruption than government for three reasons:<a href=#foot1 name=head1>¹</a>

(1) Businesses are accountable to stockholders. As such, they have incentive to make their operations transparent.<a href=#foot2 name=head2>²</a> While these incentives occasionally breakdown to to the difficulty of monitoring, such occurences are extremely rare.

(2) Businesses must earn profits to stay afloat. Government has no such mandate. As such, in government, corrupt practices are not internalized to the extent that they should be.<a href=#foot3 name=head3>³</a>

(3) Government is especially prone to rent seeking. E.g. If government is involved in structuring tax companies, tax lobbyists will lobby government to regulate in a way that is favorable to the indsutries with the greatest Congressional influence.<a href=#foot4 name=head4>⁴</a>
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Let me see if I can bridge the gap here:

<a name=foot1>1.</a> And I quote,
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"Amitai Etzioni of George Washington University found that between 1975 and 1984, 62 percent of Fortune 500 companies were involved in one or more incidents of corrupt behavior, including price fixing, bribery, violation of environmental regulations, and tax fraud. A 1979 study by Marshall Clinard concluded that 45 percent of the 582 largest corporations in the United States had been charged with at least one moderate or serious violation of federal law in 1975 and 1976."

"The business community is up in arms about attempts to toughen the penalties for corporations that violate the law. In April, business leaders successfully pressured the White House and, through it, the Department of Justice to hold back the U.S. Sentencing Commission, which was about to recommend guidelines that would have required stiff fines – up to hundreds of millions of dollars per offense – for convicted corporations." –Amitai Etzioni, 1990

<i>…As of September 2004, members of the Corporate Fraud Task Force had charged some 900 violators and secured over 500 corporate fraud convictions, including at least 25 former CEOs. Many of these convictions led to prison sentences. In addition, Task Force members have frozen tens of millions in assets. In a keynote speech at the NACD Annual Conference in October 2004, Comey explained that <b>the main purpose of the Task Force was to deter white-collar crime by prosecuting <font color=red>high-profile cases</b></font>."</i> (emphasis mine)
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In short, business corruption is endemic, pervasive, and historically speaking, no anomaly. But it's funny how unless it's a sex scandal, political corruption tends to focus on businesses buying access to power? More about that later.

<a name=foot2>2.</a> Corporations do <i>"have incentive to make their operations transparent"</i>to their stockholders, unless it involves some malfeasance on the part of individual officers; or cannot legally be disclosed because on non-disclosure agreements; or could be spun in a shareholder's report to keep their own stock options' values inflated.

(This, by the way, is the problem with Elephant's suggestion that the only corporate legal reform we really need would be to give each worker the guaranteed right to own a share of their employing corporation; as long as those shares are publically traded, the arbitrage value of artificially inflated stocks is often too great a temptation for those seeking a quick buck.)

<a name=foot3>3.</a> I don't get it–which type of organization has an incentive to screw you over more, one whose stated purpose is to serve you or one whose stated purpose is to profit from you? With a truly democratic (and less bureaucratic) government, you can vote people out of office; I couldn't vote out Bill Gates unless I bought a whole shitload of stock.

<a name=foot3>4.</a> I agree. What we need to do is make it illegal for corporations to lobby. I'll trade you all the unions for all the corporations, I think that's a fair deal.

Anyway, I was thinking about how governments could effectively regulate markets in a way that is both fair, just, and takes away the incentive to cheat.

Take, for example, the disposal of toxic waste, which is terribly managed around the world. Say the government were to mandate that all toxic waste be disposed of by a federal waste collection agency <b>at cost</b>, regardless of volume, and that this would be paid for by a VAT on any product which produces hazardous waste. Now, the point about toxic waste is that it's not something you can hide in the supply closet, it needs to be dumped, but all the same, we could make private disposal of hazardous waste a federal crime, because we can reasonably assume that it is being disposed of unsafely. So the incentives to cheat (dumping waste in the river, running a crooked sanitation company which does the same) are lessened by the fact that the VAT rate reflects the totality of business practices as opposed to giving a particular company an incentive to cheat (i.e., making the risks unacceptable to comparable gains). The best result would be an industry-wide effort to reduce toxic waste, because the reduction of it <i>across the board</i> can only improve their bottom line (as opposed to thinking about the costs of private, for-profit disposal).

I know two things: cheaters and grey markets thrive on badly-written rules, and an ounce of prevention is worth a pound of cure. Good laws understand, but do not condone cheating; simple principles are harder to break than the letters of the law.