Stephen Labaton, in a front page Oct. 29 New York Times article ("Businesses Seek New Protection From Litigation") writes:

Frustrated with a recent round of laws and regulations that have been used to sue big companies and auditing firms, corporate America -- with the encouragement of the Bush administration -- is preparing to fight back.

Now that corruption cases like Enron and WorldCom are falling out of the news, two influential industry groups with close ties to administration officials are hoping to swing the regulatory pendulum in the opposite direction. The groups are drafting proposals to provide broad new protections to corporations and accounting firms from criminal cases brought by federal and state prosecutors as well as a stronger shield against civil lawsuits from investors.

Although the details are still being worked out, the groups' proposals aim to limit the liability of accounting firms for the work they do on behalf of clients, to force prosecutors to target individual wrongdoers rather than entir ecompanies, and to scale back shareholder lawsuits.

The groups also hope to reduce what they see as some burdens imposed by the Sarbanes-Oxley Act landmark post-Enron legislation adopted in 2002. The law, which placed significant new auditing and governance requirements on companies, gave broad discretion for interpretion to the Securities and Exchange Commission.

To alleviate concerns that the new Congress may not adopt the proposals -- regardless of which party holds power in the legislative branch next year -- many are being tailored so that they could be adopted through rulemaking by the S.E.C. and enforcement policy changes at the Justice Department.

The first thing that struck me here is how prevalent the defense impulse is among the rich and powerful. No sooner had the Busheviks seized power than they started barricading themselves against the long reach of international law. Back in early 2001 the prospect of having their sorry asses hauled forth to the Hague had much the same hypothetical air, but five years later one thing we can say for sure is that exemption from ICC review hasn't made us less likely to commit war crimes or crimes against humanity. The threat of prosecution may not be the ideal way to encourage good behavior, but replacing it with indemnity -- all other factors remaining equal -- is damn sure likely to have the opposite effect.

My second thought was how typical this approach seems in an era where appearance is valued way above reality -- mostly because it's so much easier to fake appearance. What Enron and WorldCom did was actually something almost universal in the corporate world: they attempted to construct a façade that appeared even more successful than they actually were. Everyone does that, and it works as long as nobody looks too close at what's being covered up. So the idea here is to make it harder to look, to reduce the motivations for looking, and to reduce the risks if anyone still bothers. Only in a world where appearances are everything would anyone even suggest such a thing. But that's increasingly the world corporate titans and politicians live in, along with their market researchers, PR flacks, lobbyists and lawyers.

My third thought concerns victims. Corporate fraud is not a victimless crime. The best you can say is that in most cases all the victims lose is money, but it's hard to argue that money is a matter of little importance to them. They are, after all, the investors who provide the capital that capitalism depends on. Laws against corporate fraud and malfeasance aren't generally intended to harrass corporate management, except insofar as they ensure that management is responsible to the investors. So this is not a question of the rich screwing the poor -- investors include more of the middle class than used to be the case, but as a class they are anything but poor. No doubt the Busheviks like this because they have the same relationship to the voters as the corporate managers have to the investors, including a relish for whatever they can get away with. But take away the control that protect investors and eventually you'll hollow out the whole system. Much like Bush's abuse of trust has hollowed out America's democracy.

None of this means that the regulatory expense of trying to keep publically traded corporations honest and forthright isn't a burden on business. But if it is so, it may be because we got off on the wrong foot by requiring that corporations hire the auditors who certify their accounts. The obvious alternative is for the government to hire the auditors, which would establish that they work for the public, not for the corporation. Such a case would eliminate the temptation on both sides to fudge the books -- accounting firms lose the incentive, and corporations lose the opportunity. The audits could then be further reviewed, with practices standardized in an open and transparent process, which would greatly improve the quality of information provided to investors. Better information should, in turn, lead to more productive investments, which ought to be a plus for the entire economy.

For many years this wasn't much of a problem, mostly because accounting firms were isolated from other business relationships and regarded their integrity as important. I recall reading a study back in the early 1980s that ranked professions according to integrity vs. corruption: accountants had by far the highest rating, and lawyers by far the lowest. This changed primarily because of deregulation of financial services combined with lax antitrust enforcement that allowed for industry consolidation. Those things happened because the lobbyists pushing them weighed in far more strongly than common sense that might have given us pause -- and because the politicians of all stripes learned to follow the money.

These new proposals are so contrary to what we know about the behavior of corporate management that they should be laughed all the way back to K Street. But the system is so totally corrupt that you can't be sure that anything ridiculous won't find a way to slip through the cracks. Still, there's more wrong here than mere corruption. Much as we've lost grip on the notion that there is a public interest distinct from some weighted sum of private interests, we've lost our to distinguish between systems and actors. Capitalism depends on accurate investment and price information and competitive markets, but corporations often gain their advantages by subverting just those things. The SEC exists to protect capitalism from corporations, but we've gotten more and more confused on this point, in large part because we assume that the corporations are capitalism. Similarly, we assume that the actors in top management are the corporations.

Same thing happens when we assume that the executive branch is the government, and that the president is the executive branch. This sort of association shifts power to the top, not least by weakening checks and balances everywhere else. That may seem to work if you have someone at the top who looks out for all the other interests in the system. That more or less happens some of the time -- more so in the business world where competition has a sobering effect. But we have many other examples of what happens when that sort of power is handed to scam artists -- just think of Enron under Ken Lay, and the US preidency under George W. Bush.