Corporate Crime Reporter
18 Corporate Crime Reporter 4(12), January 26, 2004
INTERVIEW WITH DAVID CALLAHAN, AUTHOR OF THE CHEATING CULTURE,
NEW YORK, NEW YORK
It’s not just by and for big business.
Cheating is up across the board.
In fact, David Callahan believes that we live in a Cheating Culture – and that’s the title of his new book. (Harcourt 2003)
Callahan says that the increase in cheating has created a crisis that infects nearly every part of American society, from education to sports to business to a myriad of professions.
By cheating he means breaking the rules to get ahead academically, professionally or financially.
Some of this cheating involves violating the law, some does not.
But
either way, most of it is by people who, on the whole, view themselves as upstanding
members of society, he says.
Upstanding.
To
gain some insights into our cheating culture, we interviewed Callahan on January
19, 2004.
CCR: What is your current professional position?
CALLAHAN: I am the director of research at Demos, a public
policy organization that combines research and advocacy.
CCR: What issues does Demos work on?
CALLAHAN: We work to create a more widely shared economic prosperity
and to increase the vibrancy of American democracy. We also just started a new
project on strengthening the effectiveness of governance. Demos' long-term goal
is to help reinvent public policy for the 21st century.
CCR: How do you do that?
CALLAHAN: Demos seeks to bridge the divide between ideas with
action, and to connect up different issues.
In the democracy area, we have been working on reducing barriers to voter participation
through ideas like election day registration and eliminating felony disenfranchisement
laws.
On economic opportunity, we have been working on credit card debt, looking at
ways to more effectively regulate the credit card industry, and to address the
root causes of growing debt among Americans – namely insufficient wages
and rising health care costs. We are also exploring long-term challenges to
American society, such as how to regulate corporations in an era of globalization
and how to reduce growing economic inequality which is eroding both social trust
and our democratic institutions.
CCR: How old is Demos?
CALLAHAN: It is five years old. I co-founded it with Steven
Heinz who is now the President of the Rockefeller Brothers Fund, and Charlie
Halperin, who was the President of the Nathan Cummings Foundation. We are now
a $2.5 million organization with about 25 staff. Miles Rapoport is the President
of Demos. Previously he was a state legislator and then Secretary of State in
Connecticut.
CCR: What was the last university you graduated from, when
and what have you been doing since?
CALLAHAN: I got my PhD in politics from Princeton University
in 1997. I was then a fellow at the Century Foundation in New York. And then
I started Demos in 1998.
CCR: What was your PhD thesis?
CALLAHAN: I was focused on U.S. foreign policy. I sought to
explain why we did so little to change our national security doctrine after
the end of the Cold War.
CCR: How did you become interested in the subject at hand –
cheating?
CALLAHAN: I became interested broadly in domestic policy and
became interested in the ways in which conservatives have won the war of ideas
in the United States and have built effective think tanks – along with
the ways they have been successful in advancing market values and laissez-faire
ideology within the political discourse. That interest led me into wanting to
start an organization that could present an alternative vision of a better American
society. And I've always been interested in broader questions of values and
the way our political discourse has been framed.
My last book was titled Kindred Spirits: Harvard Business School's Extraordinary
Class of 1949 and How they Transformed America (John Wiley & Sons, 2002).
I was looking at this group of businessmen who were certainly not saints in
their day – they ran multinational corporations.
But they had very different values, it seemed to me, than the CEOs who ran places
like Enron and WorldCom. They were less greedy and focused on themselves.
I became interested in how it was that the values of America's corporate leaders
had become so much more rapacious, predatory and dishonest. Then I started looking
at cheating elsewhere - in schools and sports and law and medicine. And I thought
this would make a great topic for a book.
CCR: You have said in media interviews that you believe that
cheating in America is on the increase. But there is no way to know, right?
CALLAHAN: There is good data in some areas, such as surveys
that chart an increase in academic dishonesty. The IRS also has evidence of
increased tax evasion, and some data exists in other areas. But for most types
of cheating – like cheating by lawyers or accountants or executives –
social scientists and pollsters have not done large-scale surveys of people
asking them about cheating.
CCR: So, how can you say that cheating is on the increase across
the board?
CALLAHAN: I make more of a qualitative argument and look at
many different examples to make the argument that there is more cheating than
in the 1950s and 1960s. It is an intuitive chain of logic. It is more rational
to cheat now than it was say 30 years ago. So, for example, the legal profession
has become more bottom line oriented over the past 20 years or so. It has become
much more focused on profits.
The number of hours that associates and partners are supposed to bill is much
higher today than it used to be. There is less job security. It is more difficult
to make partner at these corporate law firms. For those who do make partner,
the rewards are much greater.
And so people are under more pressure just to get by. If you do get by and succeed,
the payoff is much bigger than it used to be. Not surprisingly, academic research
shows that overbilling has become pervasive in the legal profession.
There have been no surveys that ask lawyers if they are overbilling more than
usual, but looking at the research that is out there has led me and others to
conclude that there is more overbilling in law than there used to be.
In medicine, there have long been conflicts of interest and doctors breaking
ethical rules, but in recent years there has been an explosion of this, with
pharmaceutical companies giving doctors various gifts to prescribe drugs, or
to put people into clinical trials.
And that reflects many of the economic pressures that doctors are under as there
has been this corporate takeover of health care.
So, again, there are no good surveys out there across time that asks doctors
about their ethical conduct. But there is a mountain of qualitative evidence
showing more conflicts of interest than there used to be, along with a very
good structural explanation for why this might be.
CCR: Do you believe that society, like a fish rots from the
head down, with the major institutions – corporations, government –
rotting first?
CALLAHAN: I guess I would subscribe to that theory. In American
society, the rich have been behaving extremely badly over the past 20 or 30
years. We have had an endless succession of corporate scandals – the insider
trading and defense scandals of the 1980s and 1990s, the savings and loan scandals,
and then all of these big business scandals of recent years.
Again and again, those people who have been implicated in these scandals have
walked away with lax punishment. This isn't lost on the ordinary American. People
can read the newspapers. They can see that we don't have an equal system of
justice in this country. The rich and powerful walk into courtrooms with sophisticated
legal teams.
Ordinary people don't have those kinds of resources. When they do wrong, they
more often than not have to pay the consequences.
That produces a great deal of cynicism. And that cynicism about equal justice
and who runs society has been rising at the same time that there has been a
great deal of growing financial insecurity among ordinary Americans.
So, you have on the one hand people feeling pinched economically, and on the
other, you have people feeling very cynical that the rules aren't fair. And
that's a formula for more cheating.
CCR: On the other hand, you do have the federal government
bringing some big prosecutions against high profile corporate executives.
The cases are proceeding to trial. There have been some impressive plea agreements.
That's a positive sign, right?
CALLAHAN: It remains to be seen whether there is going to be
meaningful justice for the corporate scandals that have occurred. You have somebody
like Gary Winnick who pumped and dumped the stock of Global Crossing, who escaped
without any meaningful action against him.
Same for his role in Michael Milken's insider trading scandals. You also have
the corrupt analysts on Wall Street – Jack Grubman, Henry Blodget –
getting slaps on the wrist, without admitting wrongdoing. Meanwhile, the top
leaders of Enron – Jeffrey Skilling, Kenneth Lay – haven't been
charged with any crime.
CCR: These are complex matters. You have to work up the food
chain. They've just recently secured the guilty pleas of the Fastows. Lay and
Skilling might be in their sights.
CALLAHAN: It remains to be seen. They might indict Bernie Ebbers
of WorldCom and Skilling of Enron. But nailing these people in court is difficult.
These are complex cases. If you show a jury, any jury, 10,000 documents over
the course of a four month trial, they are not going to know what to believe
when they get to deliberations.
So, I would be surprised if there are many convictions. I would be surprised
if many people go to jail or stay in jail for any significant amount of time.
What happened in the savings and loan scandals was that $300 billion disappeared.
A couple of people went to jail. Fines were levied that were never paid back.
Individuals were fined, but the federal government does not effectively collect
fines imposed on individuals in these criminal cases.
Also, some of these settlement amounts are tax deductible. Ivan Boesky deducted
something like half of his settlement with the government. Merrill Lynch apparently
can deduct something like 40 percent of the $100 million it paid to settle the
case brought by New York Attorney General Eliot Spitzer.
CCR: Why do people cheat?
CALLAHAN: Four reasons.
First, everyone is under a lot of pressure to perform economically. We have
a much more competitive economy, much less job security, more people are being
chased by bean counters and forced to meet their quota and otherwise perform
– like doctors in HMOs who have to be more productive than in the past.
Lawyers have to bill more hours. Corporate CEOs are under a lot more pressure
to meet earnings estimates than in the past. There are many more people under
much more pressure. And that creates incentives to cut corners.
Second, there are growing rewards for the people who become winners. We have
a winner-take-all economy. And the stars get paid a huge amount. If you are
top slugger in baseball today, you can make $18 million, whereas ten years ago,
you couldn't make near that amount of money. That is a very strong incentive
to take steroids to increase your hitting power – hit more home runs,
make a lot more money.
Likewise, CEOs get paid a lot more than they ever get paid, and in the 1990s,
a lot of their potential for huge pay was wrapped up in stock options, which
provided major incentives for them to inflate earnings projections in order
to pump up their stock.
Third, we have had 20 years of government being attacked, downsized, demeaned,
disarmed. The watchdogs have been put to sleep or not given the resources to
do their jobs. So, for example, the Internal Revenue Service has had a flat
or declining budget in the last decade even as tax returns have increased significantly
and become a lot more complex. The IRS has had nowhere near the resources to
do its job. Same for the SEC.
Also, many professional associations have done a very poor job of policing their
ranks – whether it is state medical societies, state bar associations,
the National Association of Securities Dealers. These organizations have been
extremely ineffective at disciplining their own professionals.
Finally, American culture has changed a lot in the last 25 years, and not for
the better. We have become a more materialistic, more individualistic society.
The individualism of the 1960s teamed up with the materialism of the 1980s to
create a culture milieu hospitable to cutthroat behavior. The me generation
has met greed is good. And the results are not pretty.
CCR: You say in your book that historically, philosophers have
made the point that people are more likely to follow rules or laws that seem
fair and are made by an authority that deserves its power. Does this downward
spiral we are in mean that we as a public don't believe that our government
doesn't deserve its power?
CALLAHAN: There is a big problem with legitimacy in American
society. The social contract is broken. The social contract depends upon a couple
of ideas being true.
One – if you play by the rules, you can get ahead and have a decent life.
Two – everybody gets a voice in making the rules.
Three – everybody who breaks the rules is judged by the same standards
and is equal before the law.
That's not the society we live in. There are lot of people in our society who
play by the rules and do not get ahead and do not have a decent living, and
cannot afford adequate health insurance or housing.
We have a society where people who break the rules end up as winners and do
splendidly well. And we don't have equal justice before the law. There are people
who break the rules and get ten-year mandatory minimums for non violent offenses.
And there are people who break the rules and don't even get brought to trial.
That leads to cynicism and undermines legitimacy in the system. In that environment,
why not make up your own rules?
CCR: Also, there is no real political opposition force to challenge
the me-first politics of the Democrats and the Republicans.
CALLAHAN: Right.
CCR: Interestingly, you write about William Bennett as being
an arbiter of virtue and morals. But he rarely talks about corporate crime.
He doesn't challenge it.
CALLAHAN: The right in this country has defined the values
debate very narrowly. They define it as sexual morality, family, drugs, crime
and personal responsibility in these areas. Other problems related to the free
market and the moral downside of capitalism – greed, materialism, cutthroat
personal ethics – have not been part of the values discussion. Democrats
and liberals have been ineffectual at raising those issues.
CCR: But it would seem to be a winning political equation to
take the moral high ground against the business class. Why don't the Democrats
raise the issue more forcefully?
CALLAHAN: Democrats have been operating in a defensive mind
set. In the values arena, they have been trying to neutralize the right's advantage.
Clinton's whole strategy was to fight on the right's terrain when it came to
values. He wanted to show that he cared about the family, stopping teen pregnancy,
and reducing crime. Democrats have not been taking the offensive and thinking
pro-actively.
I do believe it is a great opportunity to define the values agenda, to highlight
the moral downside of the free market, and put that downside front and center
of a political message.
CCR: Another reason is that the Democrats have been corrupted
by the same pot of corporate money.
CALLAHAN: That is part of the problem. I have an article in
the Nation on the question of how the Democrats can exploit the cheating crisis
in America and shape a values message.
CCR: If you were a values czar, what would you do to turn things
around?
CALLAHAN: At the macro level, we need a new social contract.
We need to create the conditions so that people who play by the rules do get
ahead. That means a lot more government intervention in the economy –
to create greater equity and support for working families, and to ensure that
work pays. Also, we need to ensure that people are equal before the law. That
means coming down a lot harder on corporate criminals and on the wrongdoers
in the ranks of the winning class.
Meanwhile, we need to declare a cease-fire in the war on the poor, which has
unfairly brought draconian punishment to lower income people in this country.
We also need to find ways to create stronger social solidarity and community
in the United States, whether it is national service or efforts to reduce sprawl,
create stronger physical communities, or efforts to strengthen civic participation.
That's it at the macro level. Moving down, there is an urgent need to strengthen
the government watchdog agencies, like the IRS and the SEC, which have been
politically sabotaged and undermined over the past two decades – and give
them the resources they need to do their jobs. I believe that we are talking
about significant budgetary increases and staff for both of those agencies.
Also, the professional groups and associations each need to do a much better
job in policing their own ranks. Right now, state bar associations are pretty
much a joke in terms of disciplining lawyers.
They need to do a better job in that area. If they can't, then government needs
to step in. Same with the state medical societies that discipline doctors.
There is also a great deal to be done in terms of business ethics and institutional
change in the corporate world. There are many examples of strengthening ethics
within business, and we need to replicate those on a larger scales.
Academic institutions can do a lot more to foster integrity. And our society
can do more to help children see that their future is more than just about a
career, and that there are other values worth striving for, other things worth
worrying about beyond getting perfect grades all of the time so you can get
a high-paying job.
CCR: Your organization has put out a report on the growth of
credit card debt in the 1990s. What does that have to do with cheating?
CALLAHAN: Americans are relying on credit cards to make ends
meet. And they are getting into the red often because the credit card companies
are exploiting their vulnerabilities through unfair and deceptive practices,
such as jacking up various fees, charging them late fees that aren't well disclosed,
and increasing their interest rates dramatically for late or missed payments.
The credit card industry is one of the most unsavory industries in America today,
right up their with the pharmaceutical industry.
Our report found that credit card debt has increased dramatically over the last
decade. There has been a lot of deregulation of the industry at the same time
that many families can't meet their basic economic needs. So, there is this
combination of a growing number of people in economic distress with more predatory
credit card companies taking advantage of that distress.
CCR: You worry about the United States becoming like Brazil.
One of the concluding chapters is titled "Dodging Brazil." How's that?
CALLAHAN: I'm worried that we are going to become one of those societies
where you have a corrupt oligarchical overclass that is basically ripping off
the society, and controlling the state to help themselves do that.
Below that, you have an extremely cynical population that doesn't believe in
anything, and that takes whatever opportunity they have to do a little better,
whether it means cutting corners or not. In a society like Brazil, you have
high levels of economic inequality, you have an extremely weak government, weak
regulation, and high class antagonism.
The result is a lot of bad behavior by both the wealthy and ordinary people.
I'm worried that if the United States keeps becoming more unequal, and our government
becomes ever more beholden to wealthy interests, we could get to a place not
unlike Brazil.
CCR: What signs do you look for to see whether we are approaching
Brazil in our downward spiral, or pulling out of it?
CALLAHAN: The outcomes of these corporate trials will be significant.
If we do bring many of these wealthy wrongdoers to justice, then it will send
a message that government can go up against the interests of corporate America
and insure equal justice.
But if the outcome is that very few people go to prison, and many people who
stole a lot of money get off scot free, that will bode poorly for the future.
[Contact: David Callahan, Demos, 220 Fifth Avenue, Fifth Floor, New York, New
York 10001. E-mail: [email protected]. Phone: (212) 389-1401. For more
about cheating, visit: www.cheatingculture.com. For about Demos, visit www.demos-usa.org.]
Corporate Crime Reporter
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