JP Morgan Chase and Co. harvested a bright new recruit in early
January. Former British Prime Minister Tony Blair joined the
venerable U.S. bank as a senior advisor. He will provide “briefings
on political trends” to the company’s senior management and
participate in senior-level client events. Blair says he “hopes to
help the company grow.”
Although Blair’s appointment further burnishes JP Morgan’s
reputation for business acumen — it avoided the worst of the
recent sub-prime banking drama — it also adds to the troubling
trend of politicians working in private industry after leaving
politics.
Blair is not the first to accept such a position. Following
their terms in office, John Major and George H.W. Bush both walked
into positions with the Carlyle private equity firm. In Australia,
Bob Carr, the long-serving premier of New South Wales (Australia’s
richest state with capital Sydney), became senior advisor to
Macquarie Bank, Australia’s largest investment bank, barely two
months after leaving office. Tuesday’s Wall Street Journal
revealed Bill Clinton’s profitable involvement with Yucaipa, his
friend’s investment company.
This practice is neither right nor inevitable. Politicians
should not be allowed to work in private industry following their
retirement from office. If public opprobrium proves an inadequate
disincentive, then the law should step in.
After a lifetime of reflection on government, Nobel
prize-winning economist and political philosopher Frederick Hayek
wrote in his book Law, Legislation, and Liberty that
politicians “should not be re-eligible…to return to earning a
living in the market [following office] but be assured of continued
public employment in such honorific but neutral positions as lay
judges, so that during their tenure as legislators they would not
be concerned about their personal future.”
Hayek’s concern stems from two potential conflicts of interest.
When former politicians take positions in private industry, they
naturally bring with them a host of informal contacts within the
legislature and — if their party is still in power — the
government itself. Such contacts can lead to information flows that
impair fair competition.
For example, how will Tony Blair’s reports on “political trends”
remain objective when he himself is still part of those trends, and
when his long-time colleagues and friends occupy the upper echelons
of the British state? Also, JP Morgan’s knowledge advantage could
start a corporate scramble for the well-connected, a highly
undesirable outcome.
THE SECOND, potentially more serious conflict arises for serving
politicians. When lucrative post-political positions are in the
offing (Blair is reportedly being paid over 500,000 pounds a year
for his services), politicians might modify their behavior with an
eye to future employment prospects.
In December 2007 the British government appointed Goldman Sachs,
the giant American investment bank, to find a buyer for the ailing
British bank Northern Rock. No doubt due process was followed, but
when the criteria used to select among tenders potentially extends
to include employment possibilities, perverse incentives arise.
This is not to impugn anyone, but to admit that the probability of
malfeasance is significantly strengthened when it becomes usual for
politicians to seek positions in the private sector.
Arrayed against these arguments are three stale points. First,
politicians are poorly paid compared to corporate directors, and
their recent opportunism is at least understandable. Second,
politicians are able people who should be able to make
contributions beyond the confines of public office. Finally, it is
unfair to hold politicians to such a high moral standard. To the
contrary:
The career of politics grants a feeling of power. The
knowledge of influencing men, of participating in power over them,
and above all, the feeling of holding in one’s hands a nerve fiber
of historically important events can elevate the professional
politician above everyday routine even when he is placed in
formally modest positions.
The analogy of politics to private management is unwise, unhelpful,
and unoriginal. What Max Weber said above, in his famous 1919
lecture,
Politics as Vocation, is still true today. Yet
this is often unappreciated.
James Bryce observed in 1888, in the American
Commonwealth, that “politics has now become a gainful
profession, like stock broking, the dry goods trade, and the
getting up of companies.” Even if this remains the perception of
many, it is not accurate. A minor politician’s vote can wield more
power over his citizens’ affairs than the highest-paid corporate
manager, who will be lucky to be a footnote of a footnote in
history.
Besides power, perks and privilege, politicians in office are
kept in high style. And on the question of salary, they are paid
about three times the median wage of their electors. Contemporary
politicians do very well compared to their predecessors. British
parliamentarians did not receive any salary before 1911, at which
time British Prime Minister David Lloyd George stressed that newly
instituted public support would in no way “be a recognition of the
magnitude of the service.”
As Hayek suggested, to reduce corruption politicians must be
comfortably supported by the state in their retirement, and in the
U.S., Britain, and Australia this has traditionally been the case.
Yet, as the trend for politicians to seek private employment grows,
this wise custom is fading.
In 2004, Australia dramatically curtailed its parliamentary
pension scheme on the back of populist, myopic rhetoric from the
opposition leader, Mark Latham. On January 17, the Times
of London revealed that the British government was considering
abolishing parliamentary pensions, which “were no longer
justified.” Members now seemed to provide adequately for themselves
in retirement.
POLITICIANS SHOULD AVOID the minutiae of profit-making, yet a wide
range of less suspect pursuits still awaits them, some still
lucrative. Paul Wolfowitz and John Bolton retired to eminent
think-tanks. Margaret Thatcher and Bill Clinton worked the
speakers’ circuit, a path soon to be trod by former Australian
Prime Minster, John Howard, who joined the Washington Speaker’s
Bureau on January 18.
It even used to be the case that senior politicians would return
to less glamorous political positions following electoral defeat.
Twice-serving British Prime Minister Harold Wilson sat on the
backbenches of the House of Commons for seven years after his
resignation in 1976; Australia’s Billy Hughes stayed in parliament
for 29 years after his prime-ministership ended in 1923. A whole
gamut of transparent vocations avail themselves, from academia to
advocacy. In contrast, writing secret reports for investment banks,
for example, is unseemly and should be unnecessary.
But are we unfair to restrict the movements of politicians
following office? Actually, such restrictions already exist in the
private sector. Senior staff at hedge funds are unable to work for
other hedge funds for a considerable period following their
departure. Hedge funds’ trading strategies are proprietary, and the
conflict of interest is obvious.
Indeed, far from demanding too high a standard from our
politicians, we may not be asking enough. Peter Oborne’s 2007 book,
The Triumph of the Political Class, demonstrates in
gripping detail the standard to which British political life has
fallen. Moreover, an Internet search for “political scandals”
harvests far more results than the corporate sort, yet by number
politicians are but a tiny fraction of senior corporate
leaders.
We have held our public leaders to account at least since Cicero
prosecuted Verres for fraud in 70 BC. Indeed, from the mid-19th to
the mid-20th centuries we have held politicians to higher standards
than we might expect from private citizens — “a rule of virtue,”
as William Gladstone’s biographer, HCG Mathews put it.
It is hard to imagine Winston Churchill raking in the cash with
Barclay’s Bank follow his term as prime minister, or Dwight
Eisenhower offering commercial insights on the board of McDonnell
Douglas. Yet today, Mr. Blair’s latest appointment has provoked
relatively little fuss.
But it is not inevitable. Weber also said “either one lives
‘for’ politics or one lives ‘off’ politics.” We can attract the
former and discourage the latter by setting firm legal ground
rules. Opposition parties should agitate for a kind of
Sarbanes-Oxley Act for politicians, one that proscribes any
corporate employment post-office. And unlike the anti-competitive
fears surrounding the real Act of that name, politicians could not
seek office in more lenient jurisdictions! The unique offerings of
a political career have always ensured a persistent supply of
budding politicians, whatever the remuneration.
Senior retiring politicians in Commonwealth countries retain the
title “Right Honourable” until they die. This well summarizes the
esteem in which high public service has been held, and should be
held. The Right Honourable Anthony Blair is wrong to work for the
American finance house JP Morgan so soon after leaving office,
while his former government still sets the rules for the City of
London.
Ongoing confidence in our liberal democratic institutions
depends on our legislation being free from the perception and
reality of conflicts of interest. This becomes even more important
as the size of government becomes ever larger, and legislative
actions encroach ever more on our daily lives and property.
But legislation is only an emollient; electors bear ultimate
responsibility. To quote Samuel Adams, “[N]either the wisest
constitution nor the wisest laws will secure the liberty and
happiness of a people whose manners are universally corrupt. The
truest friend of the liberty of his country [is he] who tries most
to promote its virtue, and who, so far as his power and influence
extend, will not suffer a man to be chosen onto any office of power
and trust who is not a wise and virtuous man.”
