Through the revolving door?

Reader question:

Please explain “revolving door”, as in this news headline: Another Banking Regulator Goes through the Golden Revolving Door.

My comments:

The revolving door is an American idiom, a business term describing how government officials often quit their job to join a private company, usually as a top executive and getting paid a lot of money thanks to his government connections. In our example, the word “golden” suggests the said banking regulator is joining a private bank for a large paycheck, “golden revolving door” as in “golden parachute”.

You may say the revolving door is a political term also because it works the other way round as well, as a retired business executive of a private company is often hired by the government for his business experience and expertise, i.e. his business connections.

Sounds fishy?

You bet, but let me explain. First, the revolving door.

You’ve walk through a revolving door, haven’t you? At any entrance to a large building you will see the revolving door, a door that goes round and round as people go through, in and out.

In contrast to the traditional door, you go through the revolving door more or less effortlessly. You don’t have to push the door open, for instance and you don’t have to slam the door shut behind you once you’re inside.

As a business term, or political term or political business term, the revolving door points exactly to how easily some government officials move into business and vice versa, making lots of money and political gain in the process. Picture a government official walking in the revolving door and then come back out wearing a business suit representing a private company, his role completely changed. That’s how easy it seems – without effort and hence without merit.

Certainly lacking fairness to the general public.

Now, governments and businesses like it that way – They like each other. They work for each other, as a matter of fact, when all is said and done, even though on the surface they may appear to work against each other. The government, you see, is the regulator, overseeing industries and commerce, making sure laws are made and abided by.

Anyhow, governments like to hire retired business executives – couldn’t hire them when they’re young and at the height of their creative powers because governments, in the West at the very least, usually don’t pay employees a lot of money or other benefits as private businesses do. This is perfectly understandable because governments are themselves paid by taxpayer money whereas private business owners can pay as much (or as little) to anyone as they want to.

Governments like to hire retired business executives for their experience and expertise. They know their industries inside out. Therefore, if they were to draft industry regulations, they’d know what they were doing, right?

Of course, but that’s exactly where the problem is – conflict of interest.

If things are allowed to pan out this way, sooner or later you’ll find industry people writing regulations to regulate themselves.

That’s what will happen, if it’s not already happening, if the regulators and the regulated are the same people.

Got it?

If not, let’s see a few media examples to further hammer home the point as to why the revolving door between business and government must be slowed, if not stopped entirely:

1. Another New Jersey journalist to go through the revolving door and enter the world of state government this month: Mike Mathis, a veteran reporter for the Burlington County Times who is now directing internal communications for the New Jersey Administrative Office of the Courts.

One journalist of outstanding quality and considerable integrity contacted PolitickerNJ.com yesterday with an objection to the use of the revolving door moniker when describing the exodus of reporters to government jobs, saying that very few of his brethren return to the fourth estate after they leave. “From my perspective, for the door to revolve, you have to be able to go around and around,” the journalist wrote. “And when reporters leave, my sense is that 99 percent of the time the door swings only one way: out.”

PolitickerNJ.com views the revolving door as a movement in and out, not just in and out and in. The same way the press refers to ex-legislators who take lobbying jobs as going through a revolving door – most of the time, when a public official leaves to enter the world of lobbying, or even for a pension-boosting job, they never return to elected office. There are some exceptions: Bill Baroni and Jennifer Beck were staffers who became lobbyists before they won election to the Legislature. And Bob Comstock went from Associate Editor of The Record to Communications Director for Governor Brendan Byrne and then returned to The Record as Executive Editor – albeit in the 1970’s.

So here’s our question of the day: when reporters leaves their newspapers to work for the people they once covered, are they going through a revolving door – the same kind of door public officials seem to pass through when they trade their elected offices for more lucrative ones in the private sector – or are journalists simply going through a single door that slams shut behind them?

- About the revolving door, PoliticNJ.com, February 26, 2008.

2. The latest jobs update on Acoba’s website notes ex-Defence Secretary Geoff Hoon’s appointment as senior vice-president of AgustaWestland International, the Anglo-Italian helicopter manufacturer, almost two years after leaving government and six years after leaving the Ministry of Defence.

Meanwhile, former First Sea Lord Admiral Sir Jonathan Band moves from leading the Royal Navy to advising US arms giant, Lockheed Martin.

Sir Jonathan was advised to wait six months before taking up the new job.

Both moves were approved by Acoba subject to the now standard warning that they must not lobby ministers or civil servants on behalf of their new employers for a period of two years after leaving office.

Since Acoba’s launch in 1975 there has been a marked increase in the number of ministers and mandarins passing through the so-called “revolving door” between government and the private sector.

Companies keen to win NHS contracts now head-hunt top civil servants from the Department of Health.

Ex-ministers of education find new jobs running universities, and Treasury staff are in high demand throughout banking and industry.

There is a growing body of opinion that a gentlemanly system of review and advice conceived 35 years ago may not fit modern needs.

“There has been a lot of change in the last 20 years and the regulation hasn’t really kept up,” says Dr Liz David-Barrett, an Oxford University research fellow and author of a recent Transparency International (UK) report on the revolving door.

Although the coalition government increased the maximum lobbying ban from 12 to 24 months, Dr David-Barrett believes tougher safeguards are needed to ensure that private sector companies cannot benefit unfairly from insider knowledge when they take on a former top civil servant or minister.

- Call to limit businesses profiting from political ties, BBC.co.uk, July 26, 2011.

3. IN 1994 many Italians voted for Silvio Berlusconi in the hope that he could use his skills as a businessman to revive a sclerotic economy. He had built a property-and-media empire out of thin air. He had reinvigorated one of the country’s great football clubs, AC Milan. Surely he would do a better job of running the country than the old guard of corrupt politicians and introverted bureaucrats? Well, si monumentum requiris, circumspice. Mr Berlusconi was prime minister of Italy for eight of the ten years between 2001 and 2011. During that time Italy’s GDP per head fell by 4%, its debt-to-GDP ratio rose from 109% to 120%, taxes rose from 41.2% of GDP to 43.4%, and its productivity stagnated. Rather than using his business skills to revive the Italian economy, Mr Berlusconi used his political skills to protect his business interests.

The great seducer is an extreme example. And with luck Italy’s long Berlusconi-themed nightmare is drawing to a close. But the problem at the heart of Mr Berlusconi’s Italy—the commingling of power and business—is a growing worry around the world.

In “Can Capitalism Survive?” (1947) Joseph Schumpeter argued that the answer to that question was probably “no”. The great battle of the 20th century was between the state and business. And the state was likely to win because the thinkers and bureaucrats at its service were better at occupying the moral and intellectual high ground. “A genius in the business office may be, and often is, utterly unable outside of it to say boo to a goose—both in the drawing room and on the platform,” he said.

Times have changed. Most politicians now believe that businesses are better than bureaucracies at generating growth. Prime ministers and finance ministers flock to Davos not to lay down the law to businesspeople but to court their favours. Businesspeople have learned not just to say boo to a goose but to put a ring through its beak. Today the problem is often the very opposite of the one that Schumpeter imagined: not the marginalisation of business but its excessive influence.

The emerging world has gone furthest with what might politely be called “public-private partnerships”. The state grants franchises to well-connected businesspeople such as Carlos Slim in Mexico or Cyril Ramaphosa in South Africa. Those businesspeople then use their wealth to influence the state. In emerging markets such as China and Russia a group of state-owned enterprises (SOEs) dominate the economy. In “khaki capitalist” countries such as Pakistan and Egypt the army controls businesses that account for big chunks of the economy: their bosses, both as generals and as general managers, enjoy much political clout.

Crony capitalism seems to be getting worse. In China the SOEs call the tune: they suck up capital from the private sector and refuse to pay dividends to SASAC, the government body that nominally oversees them. Many of India’s dozens of billionaires made their fortunes in industries such as mining and infrastructure that are prone to rent-seeking, even if the most famous are in relatively politics-free ones such as computing.

This all matters more than it used to. The emerging world may be slowing but it now accounts for more than half of global GDP (using purchasing-power parity) compared with less than a third two decades ago. And SOEs strut the global stage. A quarter of the companies on the latest Fortune Global 500 list are from emerging markets, up from 15% in 2010. Of these, 58% are Chinese SOEs. The government has set them a target of getting half their profits from abroad in five years, up from 38% now.

The Anglo-Saxon world looks askance at Mr Berlusconi’s mixing of business and politics, and at the French phenomenon of pantouflage, in which senior civil servants move on to cushy jobs in business. But its superior attitude is misplaced. In Britain the revolving door is spinning ever more rapidly. Over the past decade 18 former senior ministers and civil servants have taken jobs with the biggest three accountancy firms, whose work includes helping businesses minimise their tax bills and lobby the government. They include Dave Hartnett, until last year the head of the revenue service, now a consultant at Deloitte. The boards of British energy firms are packed with ex-ambassadors and ex-spies.

- Cronies and capitols, The Economist, August 10, 2013.

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Zhang Xin