A while back, in another state, my wife and I went to a charity event where we entered the $25 minimum silent auction bid for lunch with a former congressman at the congressional dining room in Washington, D.C. He had just been defeated in a bid to move up to a Senate seat.
To our amazement we prevailed. No one else had bid. We ended up having a nice lunch with the congressman and his wife a few months later.
What is instructive is the fact that only months earlier, while still in office, constituents would regularly pay $2,000 or more for "Lunch With the Congressman" at these events.
During the lunch he kept asking, "What did I go for?" We didn't have the heart to tell him. His wife looked embarrassed by his persistence. Apparently he didn't understand it was never about him. It was his position of influence and power that mattered to people.
Many politicians and government officials leave office for the private sector. Often they end up working for firms they once regulated or held sway over. By the time we lunched, this congressman had joined a Washington lobbying firm.
In the U.S. we call this practice of moving from public to private jobs the revolving door. In Japan it is known as amakudari, or descended from heaven. Died and went to heaven might be a better description. It can give rise to lucrative compensation.
It also gives rise to conflicts of interest. Recently investigators into the Bernie Madoff affair found that some SEC regulators went easy on Madoff over the years in hopes of getting a job from him later.
Regulators can get sidelined not only by personal relationships but by the bells and whistles employed by the very entities they are regulating. Banking industry regulators were wowed by the big banks' supposed sophisticated modeling and risk management capabilities. No doubt this form of regulatory capture is partly responsible for the financial crisis. We had regulations. They just weren't enforced very well.
Speaking of sophisticated modeling and cozy relationships, the same might be said about the oil spill in the Gulf of Mexico. There is evidence that the Minerals Management Services relied too much on BP and issued a drilling permit without the proper disaster recovery plan.
Navigating your way through the centers of government becomes an important aspect of running a business, as regulation and government grow. You have to become not just market savvy but political savvy, as well.
Billionaire David Rubenstein from the Carlyle Group was in town right before the 2008 election. He is a big Democratic fundraiser and was absolutely giddy with the prospects for an Obama presidency. The message was to get ready for billions of dollars of "green energy" projects and other government-sponsored spending. Dig a hole in front of it and watch the money fall in.
If the truth were known, while many capitalists talk about free markets, they really try to avoid competition. They practice crony capitalism, working to influence government and regulators to protect their market and erect barriers to entry.
Even the father of capitalism, Adam Smith, opined back in 1776 that, "People of the same trade seldom meet together, even for merriment and diversion, but that the conversation ends in conspiracy against the public, or in some contrivance to raise prices." He warned against making laws that facilitated such meetings or make them necessary.
Open and vigorous competition is the great equalizer. Regulators need to guard against protecting incumbent companies that might leave consumers with fewer choices and higher prices. Government must avoid playing favorites and establishing new regulations that discourage innovations and new products.
Perhaps setting out clear rules and regulations for business to follow and allowing regulators fewer discretionary powers is best. This would reduce uncertainty. That helps economic growth. It's just a thought.
Jeff Pantages is an investment adviser. He lives in Anchorage.
By JEFF PANTAGES