Does running your own business make you a criminal?

Since the Labour Government came to power, business people have been forced to comply with more and ever increasingly complex legislation and are being buried in unnecessary red tape. Always the cry from Government is the need to protect the "public" against being somehow taken advantage of by these unscrupulous business people, or to make sure that businesses pay their "fair share" of taxes.

There are now so many rules and regulations, many of them totally subjective, that there is not a business in the country that can possibly comply totally, and therefore, should a bureaucrat want to, they could find a reason to take action against you.

As always, our situation is mirrored in America:

In a major speech on July 9, 2002, in the wake of the Enron and WorldCom scandals, President Bush announced a series of regulatory initiatives to "expose and root out corruption" in American business. Stressing that "the vast majority of businessmen and women are honest," and that reforms "should demand integrity, without stifling innovation and economic growth," Bush said that his proposals "should be welcomed by every honest company in America."

If Bush had been honest — if his initiatives were surgically directed at business crooks while leaving honest businessmen free — then we should have experienced a year of vigorous business activity and economic success. Instead, we have experienced a year of business stagnation and economic disappointment. Businessmen are, in the words of Jack Welch, "hunkering down"; they are investing less money in new technologies, new manufacturing plants, research and development; they are reluctant to enter mergers, to formulate new strategies, to take risks—and our economy is suffering as a result.

The cause of the business stagnation is that Bush has done the opposite of what he promised: his administration has persecuted the honest, productive businessmen who drive the economy.

Consider the Sarbanes-Oxley accounting law, which Bush eagerly signed last year. Contrary to the claims by politicians, this is not a law against accounting fraud—such laws have always existed—but a law that gives the government free rein to micromanage the accounting decisions of all public companies, and forces every company to spend time and money complying with onerous new regulations. Worse, since the government-mandated accounting standards are notoriously fluid and non-objective, Sarbanes-Oxley's provision that a CEO is committing fraud if his company's books do not present "fairly, in all material respects, the financial condition and results of operations" of his company—with "fairly" and "material" up to the subjective interpretation of government overseers—the government, in the words of one S&P 500 CEO, "can put any CEO in jail anytime they want to."

The basic moral premise behind a law like Sarbanes-Oxley is that businessmen are not innocent until proven guilty—that they are inherently disposed toward crime and thus must be collectively monitored and shackled by virtuous bureaucrats.

It was on this premise that Bush went beyond Sarbanes-Oxley and gave regulators at all levels the green light to crack down on businessmen in general. Since then, bloodthirsty bureaucrats have been gleefully enforcing previously unenforced regulations, harassing CEOs with threats of jail time, and more aggressively blocking mergers and acquisitions.

On Wall Street, the SEC and New York attorney general Eliot Spitzer have been intimidating firms and executives into paying huge settlements on dubiously defined offenses such as "tainted" research or IPO "spinning." In telecommunications, a potential merger between Echostar and Hughes, which seemed set to go through, was derailed thanks to what a Wall Street Journal news story called FCC Ccairman Michael Powell's "newfound aggressiveness." Over at the FTC, meanwhile, the agency has been flexing its antitrust muscles to prevent mergers in even the most obscurely defined markets, such as "superpremium ice cream," "jarred pickles," and "food service glassware." Following the government's example, embittered stock market losers and their lawyers have launched a wave of shareholder lawsuits against productive corporations like Intel and Cisco simply because of declines in their stock market value.

The essence of the new environment is that now, more than ever, businessmen cannot know what is legal or illegal until after the fact. They have no means of knowing in advance whether their accounting methods will get them thrown in jail, whether they will be bankrupted by a class-action lawsuit for "defrauding shareholders" if their new product does not sell as well as expected, or whether a strategic merger that takes years of planning will be thwarted by some ambitious bureaucrat. The result is that honest businessmen have been paralysed when it comes to steering their companies.

That businessmen are especially "risk-averse" right now is a fairly commonplace observation—but the crucial point is that they are risk-averse because of the government crackdown, which has compounded the risk inherent in all investment and management decisions with the severe risk of arbitrary government reprisal. Thanks to Congress and the administration, taking risks has become too risky.

On the anniversary of the speech that heralded so much economic stagnation, we should demand that our politicians repent for their corporate malfeasance by ending Sarbanes-Oxley, reining in the bureaucrats and, most important, preventing future costly injustices by adopting the moral premise that businessmen are innocent until proven otherwise."

Article provided by Simon Dolan of SJD Accountancy

Above excerpt courtesy of The Ayn Rand Institute

May 17, 2004