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It's Not Just a Few Bad Apples
A law and economics judge opposes justice based on moral philosophy in corporate behavior.

By Ed Knudson

Certain phrases are triggers to understanding a person's perspective. In debate surrounding current corporate behavior one such phrase is that the financial scandals are caused by a "few bad apples." Just mentioning the names of some of the companies involved reveals this cannot be so: Enron, WorldCom, Global Crossing, Arthur Anderson, Merck. These are not little companies. Anderson is not just another auditing firm; it's practices represent the patterns throughout the business world, patterns promoted by a politics which has raised the idea of the free market to the level of absolute religious belief, patterns justified even by federal judges opposed to justice based on moral philosophy.

For more than two decades the Republican Party has promoted corporate deregulation, especially since the election of Ronald Reagan. The Democratic Party has been most influenced in the last years by the so-called "new Democrats", including Bill Clinton, who support deregulation. Congress has passed legislation to deregulate companies. Those holding the most conservative economic philosphies have been appointed to the key positions in government, including the Securities and Exchange Commission and the Justice Department. It's not a few bad apples, the whole economic barrel has been rotting away.

The few bad apples approach was used by President Bush in his Wall Street speech on July 9, 2002. He appealed to the conscience and character of individual businesspersons, "offering a prescription of prosecution for individual cheats rather than an overhauling of the fundamental system of business regulation," according to an Associated Press report by Sandra Sobieraj. He did not acknowledge the history of deregulation fiercely promoted by his party and its leaders in congress and the presidential office.

And his appeal to moral decision-making has not been the hallmark of the legal concepts underlying support of deregulation in the courts. The primary concept influencing the courts has been the efficacy of wealth maximization.

The courts have been tremendously influenced over the last years by something called the "law and economics" movement, centered in the Law and Economics Center at George Mason University School of Law in Virginia. This center raises its funds from large companies potentially adversely affected by antitrust legislation. And it provides free continuing education programs to sitting judges, the very judges who have been hearing antitrust suits since 1974, when the center was founded by Henry Manne.

Consider the case of Microsoft which has been able to totally dominate the software industry. Phil Lemmons in Upside Magazine, a respected journal in the communications industry, in an article called "In Microsoft We Trust" documents specifically how Microsoft has been able to engage in antitrust behavior to kill its competitors due to court rulings by judges espousing the law and economics philosophy. (The article is not yet available at the magazine's website, but should be next month.) Here is one paragraph:
Privately funded indoctrination of federal judges sounds like a great way to take justice out of the federal juiciary. The brightest star of the "law and economics" movement, Richard A. Posner, would consider that a good thing. Posner, a circuit judge and former chief judge for the 7th U.S. Circuit Court of Appeals in Chicago, once wrote "justice" on the blackboard while teaching a law class. He then told his students he didn't want to hear that word in his class. While many believe moral philosophy must underlie a system of justice, Posner says, "I hate the moral philosophy stuff." It's a sign of the times in antitrust law. When Sun [Microsystems] seeks justice against Microsoft in the U.S. District Court in San Jose, Posner will not be the judge. But Sun's complaints will be judged in terms of Posner's ideas and those of other luminaries of the law and economics movement, such as Robert Bork and Phillip Areeda. Those ideas now carry far more weight than the antitrust laws themselves.


I read Posner's book The Economics of Justice in 1981, and was amazed at the degree to which he was absolutely committed to the idea of wealth maximization, the central value of capitalism, of course. I had sat down to read books in economics since friends were telling me I could not understand how the world really worked without knowing something about economics. Theology is often criticized for its advocacy of unreal and unprovable assertions. Well, reading Posner's book, and other books on classic economics, I came to the conclusion that it is the theologians not the economists who are really down to earth.

For example, Posner seriously advocates the selling of babies in an essay on "The Economics of the Baby Shortage". Birth mothers should be able to sell their infants to adoptive parents based on whatever the market will bear. It was probably because of such radical ideas that Posner is not sitting on the Supreme Court today; Ronald Reagan wanted to appoint him in 1984.

This is not to say, of course, that economics does not have something to do with law, with how judges make decisions to try to achieve a kind of economic fairness calculated in money terms where these factors are important. But to raise that idea to the degree it has been in the law and economics movement, to indoctrinate judges in this as the central aspect of antitrust thinking, to suggest that institutional behavior of corporations is somehow so much better and redeeming than the institutional behavior of government, to suggest that the people are always safer under the power of the corporation as opposed to government, to believe that the economic calculation is always superior to moral deliberation, all this has contributed to the rotten barrel of the corporate world at this time.

Corporate executives have engaged with a relish in what Posner believes is the highest value, wealth maximization, especially for themselves. They have been able to do so with fewer rules and regulations protecting employees, investors, or customers. Indeed, the corporate culture within which they function is one of the kind of moral relativism that Posner explicitly advocates, over-against deliberative justice or moral philosophy.

And this has a strange twist to it. Posner has been called the most influencial figure in legal thought in our time and the darling of those calling themselves "conservative." Yet he is a moral relativist and identifies with libertarianism. But at the same time the party which praises a person like Posner also appeals to people of the religious right, people who claim to be against moral relativism, indeed, who claim that it is the secular moral relativists who are the cause of what they call the social breakdown of the country. Something is a bit strange and wrong about a political party which is so confused as to purport to represent the interests of these absolutely opposing perspectives. What is sorely needed for the sake of the future of the country is a rethinking within both of the major political parties about their fundamental orientations.

So it's not just a few bad apples that have caused the current corporate financial scandals, the whole barrel of the corporate world has been rotting away under the influence of the kind of thinking represented in the law and economics movement as well as the political processes by which leaders are elected.

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More about Richard Posner:
Organ Selling. Posner is used to support the idea of selling human organs.
Sex, Economics, and Other Legal Matters. At Reason magazine. Posner calls himself a right-wing libertarian pragmatist. He comes through in this interview as a likable person.
Faculty at University of Chicago.
Senior U.S. Appeals Court Judge Richard Posner Advocates Marijuana Legalization.
Philosophy and Monica Lewinsky. In the New York Review of Books.
Richard Dworkin's Response to Posner's response to Dworkin's New York Review of Books article.
Address on Antitrust in the New Economy.
Ralph Nader on Posner's Role in Microsoft Case.

Statement of Richard Posner
- on his failure to mediate between the Justice Department and Microsoft. April 3, 2000.

----------Begin Quote

I regret to announce the end of my efforts to mediate the Microsoft antitrust case. Since my acceptance of this assignment on November 19 of last year, I have endeavored to find common ground that might enable the parties to settle their differences without further litigation. Unfortunately, the quest has proved fruitless. After more than four months, it is apparent that the disagreements among the parties concerning the likely course, outcome, and consequences of continued litigation, as well as the implications and ramifications of alternative terms of settlement, are too deep-seated to be bridged. This result is disappointing not only because of the amount of time that so many busy professionals, officials, and executives have devoted to the mediation, but also because the public interest would be served by avoiding further litigation, with its potential for unsettling a key industry in the global economy. I believed when I undertook this assignment that it was in the national interest that the case be settled, and I believe it even more strongly today.

Mediation is a confidential process, and I do not intend to make any public or private comments on the merits of the litigation, the negotiating positions of the parties, the individuals involved in the negotiations, or the content of any of the communications between the parties' mediation teams and myself. I can, however, without impropriety, say this much: Despite my strenuous efforts to maintain the confidentiality of the mediation, there has been a good deal of leaking and spinning, and this leaking and spinning have given rise to news reports that have created a misleading impression of several aspects of the process and that should be heavily discounted by anyone interested in hewing to the truth. One reason for my issuing this public statement is to correct the impression created by some news reports that there were no serious negotiations over possible terms of settlement until two weeks ago. On the contrary, almost twenty successive drafts of a possible consent decree, evolved over the past months, had been considered by the parties before it became clear late last night that the case would not settle, at least at this stage of the litigation. I particularly want to emphasize that the collapse of the mediation is not due to any lack of skill, flexibility, energy, determination, or professionalism on the part of the Department of Justice and Microsoft Corporation.

I do not intend to make any further statements about the mediation.

I would like, in closing, to commend Judge Thomas Penfield Jackson for his efforts to bring about a settlement, and to thank him for according me the honor of asking me to mediate this complex, fascinating, and immensely important case.

----------- End of Quote


















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Date Added: 7/9/2002 Date Revised: 7/10/2002

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