Why Do the Private and Non-Profit Sectors Exist Anyway? (Comparing Singaporean and American Governance)

Americans and Europeans lack widespread knowledge of civics. I don't mean abstract concepts of government but their practical application. For instance, why shouldn't the government handle all affairs? Is it checks and balances? Healthy competition? 

First-World Governmental Systems Aren't Fundamentally Different from Each Other

Consider that governments already have internal and external checks and balances. Internally, independent oversight exists through a judiciary and/or HR processes removing bad actors. Externally, privatization has become more common but one need only study America's private prisons to see secondary options don't necessarily increase accountability or efficiency. 

American-style corporate privatization hasn't provided superior oversight because boards of directors do not generally question executive decisions, and most shareholders are dispersed or inactive. Neville Isdell, Coca-Cola's former CEO, once described his distaste at a board member's meticulous research into different pay scales, implying the board member's diligence was unhelpful. Mr. Isdell worked his way up from lowly general manager to CEO, becoming one of the world's most level-headed and successful executives. If Mr. Isdell--and some might add Mr. Jack Welch and Mr. Jeff Immelt to the list--was unable to stomach dissenting or different voices on his board of directors, one can see vehicles designed to do x don't necessarily mean x will actually occur. 

Warren Buffett once wrote, "You only find out who is swimming naked when the tide goes out," and Americans appear to have accepted a default system that conceals rule-breakers or excessive risk-takers until after a crime has taken place--despite numerous regulations intending to discover miscreants in real-time. The clues point to one conclusion: systemic checks in the abstract don't matter as much as its participants' willingness to stress-test their ideas in an environment that promotes questions--and change. 

To take an example at the other end of the checks-and-balances spectrum, Singapore is essentially a one-party state run by the People's Action Party (PAP) and controls Temasek Holdings, a massive state-owned investment company. Despite this consolidation of power, no reasonable person thinks Singapore requires more political diversity to improve public responsiveness because the PAP has signaled it will not tolerate corruption. It helps that Singapore's lack of corruption is self-reinforcing--its presumed integrity functions as a powerful competitive advantage in a region with much larger, faster-growing economies. Even so, if almost-absolute power corrupts, why has Singapore succeeded? 

Someone wishing to play Devil's advocate might raise the case of Roy Ngerng, a Singaporean blogger sued for defamation. According to Singapore's Straits Times, "Mr Ngerng's post suggested that PM Lee had misappropriated Singaporeans' Central Provident Fund (CPF) savings [by likening] the Prime Minister to City Harvest Church leaders, who were at the time facing prosecution for alleged misuse of $50 million in church funds." Following a court-issued judgment of 150,000 Singaporean dollars, Mr. Ngerng apparently moved to Taiwan and "described the termination of his employment [in Singapore] as 'politically motivated.'" 

I've briefly perused Mr. Ngerng's blog, and I found his writing terrible. His posts make sweeping generalizations: "I will go quickly through the maths but you don’t have to get too engrossed with the technicalities. Just try to see the whole picture." Unfortunately, Mr. Ngerng's entire line of reasoning often misses the whole picture. He complains that citizens or CPF contributors seeking to withdraw "forced savings"--my term, not his--from the country's common fund to purchase a home must repay the assumed rate of accrued interest on the withdrawal. (For finance geeks, the closest American analogy would be having to pay taxes and/or a penalty on early traditional IRA withdrawals. Think of the American system as a privatized version of Singapore's CPF but without a guaranteed ROI.) 

Ngerng then seems to weaken his own argument by revealing the subsidized(?) mortgage interest rate available to withdrawees: only 2.6%(!). To escape the implications of this wonderfully low interest rate, he adds to it the 2.5% assumed minimum interest on CPF funds, calculating the "real" mortgage rate [as] 5.1%--allegedly "a very high interest rate." I'm not an expert on Singapore, but if you're not able to follow, just know the blog fails to consider complex regulations in light of a centrally-planned economy where the government provides subsidized flats. If I wanted to be critical, I would have argued the Singaporean government should be doing more to build and offer affordable flats for non-married permanent residents and non-married citizens, but that's a separate issue I didn't see anywhere in his analysis. 

Should the government have sued Mr. Ngerng for his poor writing? I think not--he seems more in need of an explanation of his own country's economic system than a lawsuit. If I were involved, I'd ask whether 150,000 Singaporean dollars is worth the risk that Singapore won't produce excellent writers (Kevin Kwan moved to the United States when he was 11) because they'll be too concerned with potential litigation. For a country priding itself on practicality, other approaches would have been more balanced in terms of boosting creativity while punishing lies. 

As for Singapore's allegedly harsh legal system, I'll share a story that should, once again, indicate differences between the American and Singaporean legal systems aren't as vast as you might think: I was personally fined 11,000 USD by a federal judge without being given the opportunity to appear in his courtroom. As a one-person law firm, 11,000 USD is a substantial fine that chilled my speech--in this case, innovative legal arguments and zealous advocacy on behalf of my clients relating to securities laws--and eventually played a part in my exiting the full-time practice of law after investing over 100,000 USD in earning my degree. (It didn't help that a local judge, Socrates Manoukian, initially sanctioned me 1,000 USD for making what he deemed overly zealous and disrespectful arguments in a separate matter.) 

In any case, we now ought to agree types of systems matter when trying to maximize anti-corruption measures, creativity, public responsiveness and accountability, but their implementation is equally if not more important. Stated another way, it is better to live under an honest, wise king and queen than a Parliament, judiciary, and President comprised of fools and drunkards. 

Just for good measure, I'll create my own Singaporean "free speech" test by criticizing the Singaporean government and then alerting official government entities, including the police department, to this post: I'm visiting Singapore in 11 days, and I believe Singapore is making a mistake not accommodating Jehovah's Witnesses on the basis of the group's pacifist beliefs, which forbids them from participating in Singapore's mandatory military service. Refusing to make reasonable exemptions for religious minorities reflects poorly on large entities, whether countries or companies, and also demeans one's ability to claim diversity and tolerance. Singapore's strength is not just its reputation for integrity, but its diversity, and jailing anyone part of a longstanding, established religion for his or her sincere religious beliefs makes it harder to attract the best residents from around the world.

Posted May 20, 2018. I will also demand a durian milkshake when I arrive.

 And that's how it's done, lah? 

Private Sectors Exist to Catch Blind Spots & Incorporate Missing Links into Overall System, Minimizing Fragmentation

Rather than checks and balances, I would argue a private sector exists 1) to improve civic responsibility by delegating authority; and 2) to increase the chances of attracting and developing talent that might otherwise go unnoticed. 

We've all heard it takes a village to raise a child, but the modern-day equivalent is an unfamiliar, foreboding city with numerous institutions disconnected from one other, vying to attract capital and talent. Over time, such an environment prioritizes maintenance of one's own organization and funding rather than the uplifting of one's country. Furthermore, as organizations become larger, they tend to rely on following orders for the sake of following orders, minimizing worker and citizen discretion in the process. 

Modern society has seemingly sacrificed individuality for the sake of the greater good, whether through ill-implemented quality control processes or indiscriminate technological surveillance. Individuals have rebelled by exempting themselves from rules designed to provide order, and along the way, enough factions have developed to render the intent behind most formal rules useless. In almost every case, segregation--a way of avoiding useless rules and building community through "benign exclusion"--has created greater attenuation and thus less accountability. Whether the reduced accountability results from deliberate misinformation by hostile actors because of the greater levels of disconnectedness or more honest reasons, the result is the same: a lack of trust, which leads to less compassion, less tolerance, and less kindness. A society that delegates authority without maintaining informational integrity will find that civic responsibility--and therefore community cohesion--is negatively impacted. 

The private and nonprofit sectors were designed to combat exactly these problems of segregation and misallocation of resources. What the government could not reach, leaders like the Rockefeller family, private schools (LeBron James, Clarence Thomas, etc.), 

But see Becoming Kareem (2017)

or nonprofits (in journalism and public resources, see Pew Centers, Annenberg, etc.) would. Indeed, why allow tax exemptions at all unless the beneficiaries seek out vagrants and unidentified talent and harness their energy to positive or at least non-negative uses? 

Although the private sector lacks a direct tax exemption, its ability to write off expenses or operate at a loss gives it more latitude to pursue different projects as well as hire persons unsuited to a 9 to 6 schedule. The private sector isn't attractive merely because it allows people freedom to experiment in ways less likely by career civil servants; it's also valuable because it can generally fail with less severe consequences (e.g., Sungevity bankruptcy, VW's emissions scandal, but see exploding Pintos, Deepwater Horizon oil spill) than governmental entities (Enron's request to use particular accounting standard, the Philando Castile shooting, Gulf of Tonkin, etc.). 

In the end, competition for talent--wherever it is--will arise between the private and public sectors, but neither sector can succeed without showing clear, tangible gains to the public. Such gains are not maximized unless every group's energy and input are included in meaningful rather than token ways. Generally, long-term costs of exclusion, even if unintentional, far exceed the costs of inclusion on the front end. 

I'm reminded of one of my heroes, Julian Bond, giving a speech in which he skillfully linked the future of entitlement programs to the development of diverse youth today. Since we are focusing on details, I must say I worry about the world's failure to develop leaders like Mr. Julian Bond and Mr. Lee Kuan Yew, who were so adept at advancing the argument that we are all in this together, and if we are not, we may not drown, but we will surely sink. (I heard Mr. Bond speak only once and was mesmerized. I have yet to hear another person who matches his delivery and wisdom, despite the passage of a decade.)

To sum up, the nonprofit sector exists to capture blind spots and bring them into the fold, reducing fragmentation, and the private sector exists to encourage innovation and promote less rigidity. If the public sector seeks to elevate itself above the private sector through more favorable legal treatment, it will lose its integrity by failing to see the reason for its own existence: as a store of unassailable institutional knowledge and as a bulwark against short-term shifts in public opinion.

Without Integrity, Everything Falls Apart by Encouraging Unnecessary Complexity & Division

As the modern economy has become more intangible (bits and bytes) than tangible (a new NASA Space Center in Houston, Texas), governments are hard-pressed to maintain credibility, especially as private and nonprofit sectors compete more aggressively for talent. The way to reverse this trend is not to argue, as President Obama and Senator Elizabeth Warren foolishly did when they said "You didn't build that [on your own]," but to acknowledge any successful economic system is complex and requires all gears to work together to move forward. It helps to have a 10 year budget with contingencies for revenue shortfalls, but many ways exist to blunt the argument that government doesn't care about a particular segment of society or is wasting taxpayer funds. 

Above all, governments must remember they exist not to be "umpires," as the current Chief Justice of the Supreme Court once said, but to create a store of long-term institutional knowledge that excludes the influence of marketing. To act as an objective store of institutional knowledge requires integrity, the sine qua non of any successful enterprise, but particularly in government, which must often act as a mediator or brake against excesses. In addition, without integrity, a government will soon find itself outflanked by the private sector even in areas like space exploration, where R&D may not see investment returns for decades. A government that can tax by force begins with a competitive disadvantage against the private sector; a government that taxes without the presumption of integrity will automatically injury-default to competitors. 

To be sure, a government with integrity has more leeway with the public, reducing the need for fragmentation. Consider the following novel idea: citizen morale can be improved by designating specific ombudspersons under each department accessible by phone and email and required to respond within one week to any citizen question or complaint. Ombudspersons would need to collaborate with each other and inform agency or department leaders of policy decisions, all of which would be publicly accessible. Citizens opposed to any ad hoc policies may then petition each other and local government to reverse decisions not in the public interest, but such reversal should not be based on public opinion. Customers are not always right, and neither are citizens. Ombudspersons would be valued based on abilities to provide and communicate objective, independent, and consistent guidelines and would serve 10 year staggered terms. This is one example of an idea that can only be done in a country where integrity is presumed in governmental ranks. The alternative seems to be a mishmash of rules and regulations no one understands, with the need to hire an expensive (and potentially dishonest) attorney. If legal alternatives become too expensive or onerous, loopholes will be sought, and segregation assured. 

What Will the Future Look Like?

I started this article comparing two countries with two different systems: one allegedly more authoritarian, and one allegedly more free. We should now see labels weren't very helpful in determining which system truly accomplished its goals. 

The deal between governments and citizens used to be straightforward: 1) don't question the King because his power comes from God; 2) in exchange for your loyalty, we'll give you the essentials, including shelter, protection, and food. Over time, more people clamored for greater transparency and participation, and as information and products once restricted to governments became publicly available, governments diverged. Some continued the older model of exchanging economic security or non-interference for obedience (or at least a lack of open criticism) while others encouraged transparency and open discussion. The push and pull between the private and public sectors has always occurred, whether the Dutch or British East India Companies and the House of Habsburg, or Amazon versus state taxing authorities. If it feels different today, it must be our own ignorance of history rather than novel developments. 

Looking ahead, it will be interesting to see how different governance models respond to severe recessions. A government that premises social stability on economic growth and less citizen participation seems to require perpetual GDP and jobs growth or immigration/population restrictions that reduce its talent pools. Today, the more participatory government model is embattled, not because of any inherent flaw but because of a lack of integrity: revelations have proven transparency was often an illusion and so-called democratic models were equally if not more authoritarian than more restrictive models. 

Even without the implicit promise of economic assistance, the participatory model still retains its attraction, indicating some atavistic force. Just imagine two households: in one, the children are always obedient to the parents, work hard, and receive guaranteed jobs in the parents' factory after finishing school. In the other, children are openly critical of their parents and voice their concerns loudly and often. Upon graduating college, they have no employment guarantee. Which scenario would you choose? 

The latter scenario is no longer clearly favorable because of modern-day dependence on debt and the failure to promote honest journalism, whether in the style of Studs Terkel or Edward R. Murrow. If you imagine the same comparison, but without student loans or four trillion dollars of corporate loans maturing in the next five years, the second scenario feels more attractive. Perhaps deep down, we need to know we can howl at the moon, even if our voices won't change its gravitational pull. Or perhaps we know a society that discourages questions will eventually become complacent and decline; segregate itself into a new caste system; or become subservient to a more open society. 

Whatever the style or reasoning, if governments claim to be open and free, they must actually be open and free. Some governments today claim to be anti-royalty while their ranks reek of nepotism or legacy political appointees; to favor merit while allowing loopholes and preferences for ever-increasing factions; and to uphold equality while creating separate processes for rank-and-file employees as well as executives. In the end, 'tis simple: "To thine own self be true"--or be prepared to fail under any system. 

Update on June 1, 2018: I had no issues whatsoever entering Singapore. 

Dealing with Gov Corruption and Santa Clara County

I appear to have written this in 2010 or 2012.  I am publishing it on November 10, 2015.

Here is a hilarious and useful article on dealing with government shakedowns:

http://killingbatteries.com/2008/05/how-to-escape-a-bribe-shakedown-perpetrated-by-greedy-moldovan-swine/

All governments seem to have corrupt members, although differences exist in the degree and type of corruption. Why do governments have such difficulty eliminating corruption? Because government officials are backed by laws; laws confer power; and power tends to corrupt on some level.

Power Should be Limited when Objective Measures of Performance are also Limited

When I was younger, I believed judges and other government officials were uniformly intelligent and moral beings. Unfortunately, experience has taught me otherwise. Courts, police departments, and other government agencies are still subject to the rule of averages--there will be many people who are average, a few who are very good, and a few who are very bad.

Government agencies tend to have more bad employees because it is hard to judge someone who produces nothing tangible. You can judge a salesperson, surgeon, taxi driver or lawyer using many objective metrics--sales, financial well-being, customer satisfaction, number of accidents, etc. But how do you evaluate a police officer, government lawyer, teacher, or judge? It's much more complicated, because there isn't an obvious objective metric. For example, a good teacher could have terrible students, a bad teacher could have wonderful students, Cop A could have fewer complaints than Cop B but Cop B could still be better, etc. Remembering that power tends to corrupt, the general idea is to minimize power where possible, especially when performance is difficult to measure. (Unfortunately--or perhaps fortunately--most Americans haven't had sufficient contact with government officials to truly understand the aforementioned principle.)

Yet another problem with government officials--besides the power and objective evaluation issues--is that they are used to deference. Spending your day-to-day life being deferred to must have some effect on people. From what I've seen, receiving constant compliments and deference results in a gradual and permanent aversion to people who fail to genuflect socially. Such a result is not optimal, because the more government officials rely on deference, the more likely it is that kowtowing becomes the pathway to success, not merit. We will revisit this idea later on.

Santa Clara County might be a good example of the "Compliments Over Merit" principle. First, the level of inbreeding--i.e., family relations--is astounding. Several judges are married to each other or other county/city employees. This inbreeding means the entire family unit experiences constant deference and virtually no criticism. Is a societal/class/professional bubble welcome when judges have so much power and deal with diverse parties? After all, so much law turns on credibility. When judges are surrounded by sycophants and non-diverse coworkers, what is the result? When weighing testimony, are judges going to disfavor someone with an accent? Will judges be able to understand that an older Filipino person will probably agree with every single statement offered by them, regardless of actual veracity? Does being surrounded by zero African-American, Pakistani, and Filipino persons in power create a subconscious bias? Is one race or class unintentionally favored over others? We don't really know, because the level of transparency in the court system is essentially non-existent. (When I tried to increase transparency as a County Commissioner, the Presiding Judge apparently shot down my idea, claiming it would take up too much time and resources. My idea would have taken only a few minutes a day to implement.) In any case, it's fair to contend that the Santa Clara County Superior Court has a higher-than-average level of inbreeding in its upper ranks and little racial diversity. Why should we care?

For one thing, Santa Clara County Superior Court has so few minority judges, you have to wonder what it's like to be a minority in a place that resembles an Orange County country club. As of June 8, 2010, in the main civil courthouse, only two out of the seventeen judges were non-white (another three are Jewish). Also, of the seventeen main civil judges, only four are female. You might think such non-diversity is shameful in a county that is around 40% immigrant and presumably at least 48% female, but it turns out that the white male Irish-American judges--all of them--are the hardest-working, most predictable judges (I'm not saying they are the best judges, but they are consistent, work hard, and follow the law, which means a lawyer can tell his/her client whether it is cost-effective to do x or y). Moreover, the Caucasian/white judges are, by and large, quite good. The following judge is retired, so I will mention him by name--Judge Alden E. Danner, for example, went out of his way to assist me when I submitted an accommodation request for my hearing impairment. He didn't have to do anything for me, and if you believe new age liberals, you wouldn't think that a conservative white male would be overly helpful to someone like me, but Judge Danner was instrumental in my ability to practice law.

In contrast, the two most pompous and unprepared judges I've encountered happen to be non-white males. I have struggled to discover the reasons behind this phenomenon, and I think I've finally figured it out: basically, affirmative action has failed because affirmative action allows the majority to elevate minorities based on charisma or some other social factor, not merit. Meanwhile, the majority race--lacking an approved legal path to elevate members based on factors external to merit--elevates their own members using merit and intelligence, creating a gap in quality between racial minorities and racial majorities. [Note: I've noticed that local Latino judges tend to be independent and intelligent. There's one particularly cool, smart judge I've nicknamed, "The Messiah." I attribute this phenomenon to the fact that Latinos have sizable numbers and political representation in San Jose and Santa Clara County. As such, they may be racial minorities, but not necessarily powerless minorities, which creates a welcome exception to everything I'm writing in this post.]

Affirmative Action Results in Cloning Different Colors of the Same Culture

Why does affirmative action tend to work against independent, extremely intelligent minorities? A minority who works hard and shows an independent streak may show up his/her colleagues, which places him/her at a disadvantage when it comes to being hired. Who wants to hire someone who might show him up? In contrast, a minority who sucks up to the majority will be favored by the majority, even if s/he has fewer credentials. Thus, rather than help the best minorities get ahead, affirmative action seems to help undeserving, compliant minorities at the expense of hard-working, independent minorities. If my theory is correct, then affirmative action represents the worst of all possible worlds--it punishes hard-working minorities and elevates undeserving minorities, which causes all racial groups to be resentful.

Of course, there are exceptions to my theory, but even these exceptions prove that when the majority uses affirmative action to hire someone, they opt for a clone, not real diversity. For example, regardless of how you view him, Clarence Thomas is an example of an independent minority because his views differ from the majority of his own race. At the same time, his views are a clone of the person who nominated him, i.e., President George H. W. Bush. Thus, even when affirmative action results in the hiring of an independent racial minority, such independence tends to have a caveat: conformation to the racial-majority's views and culture.

[By the way, law clerks are a different breed--they have to produce something--accurate legal briefs and decisions--and so the above generalizations don't apply to them. Also, I've noticed that some of the best law clerks in Santa Clara County Superior Court happen to be Asian, which makes it strange to see so few Asian judges here. (As of June 16, 2010, only one of the main civil courthouse judges is Asian).]

To understand why affirmative action might be a terrible idea, we must think about how racial minorities function when they are surrounded by a single racial majority. A minority surrounded by a majority will automatically stand out, so s/he has to be non-threatening to succeed. One way to do that is to make jokes, have a sense of humor, and adapt as much as possible. It shouldn't be surprising then, that several judges may have shimmied their way to the top through charisma and playing the clown with colleagues. These judges tend to believe in kowtowing--that's how they've survived in their own jobs, and they probably believe what's good for the goose is good for the gander. In short, when racial minorities are placed in a non-diverse environment, they favor survival over everything else. As such, they tend to try to avoid a situation where they lose face, because while a majority-race judge will get the benefit of the doubt, it's possible the minority-race judge will not. Thus, to many minority-race judges, anyone who fails to show deference is viewed as a threat. You can almost hear the internal subconscious dialogue: "Who does this person think he is? I had to kowtow (or fit in) for years and conform to get to this position, and now he's challenging me?"

When I've seen lawyers fight for clients--which sometimes means disagreeing with a judge--the majority-race judges tend to take this opposition in stride. One judge--we'll call him the "Scandinavian Stud"--even tries to help out younger, more aggressive lawyers who disagree with him by starting out sentences with, "As you know, I can't give you legal advice, but..." However, two minority judges--both of whom are married to current or former government employees--tend to take any opposition as an insult. A failure to suck up tends to trigger the following subconscious response: "All right, you want to oppose me, I'll show you who's boss..."

I'm not saying some majority-race (i.e., white) judges don't have the same response. In one case, when I made a comment about African-American Oscar Grant, a white pro-police judge immediately got red-faced and combative. (More on this police-judicial connection later, but you can click on this LINK if you're interested in how this connection can affect justice in the court system.) Overall, though, I tend to notice race-minority judges being more prickly and demanding of deference.

Now, why should a subconscious, unintentional, and systemic issue of deference be a problem? Doesn't deference promote workplace harmony? First, all societies and systems do better when some criticism is encouraged. People improve through criticism, not false deference. (Didn't we all read the fable of "The Emperor's New Clothes"?)

Second, the kowtowing system disfavors hard-working minorities. If you're a minority who doesn't want to kowtow to the government or your colleagues, and you care more about working harder than fitting in, then you're out of luck. The majority-race judges are used to minorities who will adapt and fit into their culture, and God help the minority-race person who tries to do things differently.

Third, the whole point of affirmative action (AA) is to increase diversity and make minorities feel comfortable despite their lack of political representation and power. In theory, the majority benefits by showing its tolerance and also by gaining alternative viewpoints and experiences. However, if I am correct--that affirmative action favors charismatic and social minorities over more hard-working and independent minorities--then the aforementioned benefits do not exist, because AA produces under-performing clones of the majority. Under my theory, we could put some black makeup on a few majority-race employees and get the same result as our current AA programs. In short, as long as the majority is choosing who is hired or promoted based on AA, the benefits of AA are dubious.

Citizens Should Favor Ideological Diversity over Race-Based Diversity

Don't get me wrong--we shouldn't completely disavow AA. If AA leads to useful diversity, not cloning, then it makes sense. As it stands, many judges are elected by special interest groups--thereby reducing ideological diversity--which means residents and voters should seek useful diversity. In Santa Clara County, the county sheriffs and city police have tremendous influence over judicial elections. Remember our recent election? Almost every winning judicial candidate mentioned an endorsement from some public safety officer union. Since most residents are unfamiliar with the local court system and its members, they tend to rely on endorsements when voting, which provides police officers with disproportionate influence over judicial selection. As a result, the state judicial branch--which is supposed to check the executive branch, i.e., the police--no longer has the sufficient diversity to challenge the police. In fact, the public safety unions--the police officers, firefighters, and prison guards--have so much power in Sacramento, they have even affected the independence of the legislative branch. From an ideological perspective, real diversity in government seems to diminish with each passing day. If AA promotes independent thinkers and outsiders--a term that can sometimes be equated with minorities, though not always--then it serves a useful function. If, however, AA produces clones of the majority, it is not helpful to anyone and serves merely to reinforce the existing culture and majority.

You want one obvious example that AA doesn't promote the best minorities? The only African-American federal judge in San Jose, California  [as of 2010] may have lied about his brother being targeted during civil rights strife in the South. Even though the judge's lie was discovered, [as of 2010] he is still on the bench, and until a few weeks ago, he was surrounded by no other local judicial minorities--all of his colleagues in federal and bankruptcy court were part of the racial majority power structure (or look like part of the racial majority or power structure), and all of them are really good judges. (One of them, a white male judge, is probably one of the best judges in the entire country. I refer, of course, to Judge Jeremy Fogel.) Of course, the federal bench has several white judges who do "interesting" things and manage not to be singled out.  Clearly, the "prickliness" factor is not limited to racial minorities, but because racial minorities stand out more, their behavior gets noticed more, which reinforces an awful cycle of "respect ma authoritah!" (You may think I am being hard on racial minorities, but if you read carefully, you will notice I am not being hard on minorities--just affirmative action. All entities have good, average, and bad employees.)

What makes the AA selection process even more problematic is that hired minorities harm other minorities by promoting a culture of deference and the status quo, not true diversity. As such, if the majority gets out of hand due to a lack of cultural knowledge, there is little luck that minority co-workers will be able to rein in the majority. If anything, minority co-workers promoted via affirmative action may lead the charge against independent minorities in an effort to fit in and promote the status quo. As Shelby Steele states, "Such policies have the effect of transforming whites from victimizers into patrons and keeping [minorities] where they have always been--dependent on the largesse of whites." What then, is the use of having racial diversity if it is being achieved in a way that discourages useful diversity?

Are Social and Subconscious Racial Preferences Inevitable?

One judge has commented that lawyers are more social than other professions, implying that lawyers should understand that social activities and connections do not impact decisions and culture in the courthouse. I call shenanigans. When I see a judge hugging a lawyer in Starbucks, I get upset. When I see more experienced lawyers--who lack civility but get respect from the judges based on tenure--I get upset. When I see a judge being Facebook friends with active lawyers who may appear in front of him, it makes me upset. This web of social ties causes some judges to rely on reputation rather than the papers/briefs when it comes to evaluating testimony and deciding whether to overturn a law clerk's draft.

Think about it: social ties and inbreeding lead to gossip, and gossip relies on hearsay, which is usually unreliable and which corrodes the "fairness for all" legal system. Why read the briefs if you know the lawyer from your days in law school? Why bother checking the case citations if most cases settle anyway? Are you really going to contest a lawyer's interpretation of the law if you know he plays poker with a friend?

Social ties are fine for private sector workers who need to sell things and make things, but government employees cannot help but favor people they see on a regular basis. Most government workers don't produce anything tangible or measurable, so their success is measured primarily by reputation. Naturally, then, as in the private sector, someone who smiles and sucks up to them will be favored over someone less social. The solution isn't to blame an introverted lawyer or a non-conformist lawyer, but to work harder to rely on objective data when making decisions about courtroom culture and to increase transparency. Do certain judges rule against minorities more than other judges? Do certain judges favor corporations over individuals? We don't know. No statistics are kept on such issues. Useful transparency doesn't exist in the local court system. (Why do written pleadings even have the name of the lawyer or firm on them? Can't a system be developed to track the papers based on numbers or some other non-identifying status? Most legal opinions at the trial court level are written before lawyers appear at court hearings.)

Diversity can be excellent in terms of production and innovation, but it also creates challenges and leads to volatility. Legal systems ought to ensure that government employees, especially judges, do not attack or disfavor non-conformists, especially when such non-conformists are not part of the majority-race.

Our current legal system in Santa Clara County is flawed for many reasons, including a culture that crushes non-conformity. When a non-conformist understands the legal system is flawed, the natural response is to avoid the system--not to suck up to it. Also, when one judge physically intimidates a lawyer, and another judge lies to his face--and both of these judges allow unfair speculation to run rampant and allow their colleagues to unfairly suffer collective punishment--more social ties aren't the answer. Lawyers and residents should be able to rely on judges being fair and impartial, regardless of social ties. Oftentimes, the best people to expose cracks within the system are part of the system and cannot openly speak out; consequently, government entities should implement self-correcting measures before problems affect an entity's or person's reputation. As we all know, courts rely on their reputation to maximize compliance with judicial orders and judgments.

If Santa Clara County Superior Court fails to recognize its lack of useful, consumer-based transparency; its inbreeding problems; and its absence of independent minorities, the court's reputation will suffer. Once lost, a reputation is difficult to regain. One can only hope that the Presiding Judge and her colleagues understand what is at stake.

Sacramento Corruption?

Sacramento politicians gave $8.7 million to a private medical program that no longer functions. Yes, you read that right.  From Dan Walters: "The Assembly's budget writers wanted to give Drew $12.7 million, even though the Legislature's budget analyst, in a private memo, noted that Drew's medical-residency program no longer exists since its affiliated hospital, King/Drew Medical Center, lost its accreditation."

It gets better. The person in charge of the defunct medical residency program at Charles Drew University is a former Sacramento politician. Best line of the article: "the conference committee unanimously appropriated that [$8.7 million] amount this week without discussion." [italics mine]

Read more here.

[Note: this article has been updated since its original publication.  Outdated links to the Sacramento Bee were replaced.]  

Unconventional Thinking, Congress, and Facebook: the War against the Average American

I love these paragraphs from a recent New Yorker article on basketball (Malcolm Gladwell, May 11, 2009, "How David Beats Goliath"):

This is the second half of the insurgent’s creed. Insurgents work harder than Goliath. But their other advantage is that they will do what is “socially horrifying”—they will challenge the conventions about how battles are supposed to be fought. All the things that distinguish the ideal basketball player are acts of skill and coordination. When the game becomes about effort over ability, it becomes unrecognizable—a shocking mixture of broken plays and flailing limbs and usually competent players panicking and throwing the ball out of bounds. You have to be outside the establishment—a foreigner new to the game or a skinny kid from New York at the end of the bench—to have the audacity to play it that way. George Washington couldn’t do it. His dream, before the war, was to be a British Army officer, finely turned out in a red coat and brass buttons. He found the guerrillas who had served the American Revolution so well to be “an exceeding dirty and nasty people.” He couldn’t fight the establishment, because he was the establishment.

T. E. Lawrence, by contrast, was the farthest thing from a proper British Army officer. He did not graduate with honors from Sandhurst. He was an archeologist by trade, a dreamy poet. He wore sandals and full Bedouin dress when he went to see his military superiors. He spoke Arabic like a native, and handled a camel as if he had been riding one all his life. And David, let’s not forget, was a shepherd. He came at Goliath with a slingshot and staff because those were the tools of his trade. He didn’t know that duels with Philistines were supposed to proceed formally, with the crossing of swords. “When the lion or the bear would come and carry off a sheep from the herd, I would go out after him and strike him down and rescue it from his clutches,” David explained to Saul. He brought a shepherd’s rules to the battlefield.

The price that the outsider pays for being so heedless of custom is, of course, the disapproval of the insider. Why did the Ivy League schools of the nineteen-twenties limit the admission of Jewish immigrants? Because they were the establishment and the Jews were the insurgents, scrambling and pressing and playing by immigrant rules that must have seemed to the Wasp élite of the time to be socially horrifying. “Their accomplishment is well over a hundred per cent of their ability on account of their tremendous energy and ambition,” the dean of Columbia College said of the insurgents from Brooklyn, the Bronx, and the Lower East Side. He wasn’t being complimentary. Goliath does not simply dwarf David. He brings the full force of social convention against him; he has contempt for David.

I am citing this New Yorker piece in-depth because it perfectly summarizes my own mentality ("tremendous energy"). The "outsider" mentality may be one reason few people can tell I'm a lawyer. Like the immigrant basketball coach, I wholeheartedly agree with playing unconventionally to win, and I'd like to think my own outsider status causes me to act differently than 99% of lawyers. Like the New Yorker-profiled basketball team, I fight corporate Goliaths on a more-than-average basis, and I've gained the ire and disapproval of several of the ultimate insiders--judges. Why should you care? Because, as I will show you, America's legal and political systems are tilted in favor of the establishment and against the middle class.

The problem with the author's basketball/war analogies is they don't emphasize an unfortunate third party--referees. In a large athletic conference, in court, or in war, the bigger entities tend to get the benefit of the call (i.e., a favorable appellate court reversal or the ability to escape war crime prosecution) as well as the benefit of being repeat participants. The author mentioned that in one game when the referees didn't like the coach's style, they called fouls against the team at a 4-1 ratio, causing the unconventional team to lose. The same bias sometimes happens in court.

In court, the big firms and companies sometimes get "assists" from the legal system, even if neither side will ever admit it. Part of that is due to the convoluted evidence code and the expense in admitting certain documents, which are much easier to handle for corporations with large litigation budgets. But even removing the evidence code's rigors, bigger firms and companies are repeat players in court, which builds a familiarity with judges, clerks, and other government workers. For example, I had a case where my client had sued a county. The judge's office was in the same building as the lawyers representing the defendant/government. Whom do you think is going to get the benefit of the doubt in that case?

Making matters worse, many judges tend to be former D.A.s or city/county attorneys. Thus, in many modern day governments, workers in the legislative, executive, and judicial branches tend to know each other. Instead of breeding contempt, this familiarity tends to create an implicit "scratch-your-back and I'll scratch yours, and we'll all retire with our government pensions" culture. Such a culture is against the idea of America itself, which was created with three separate, independent branches so that various factions would fight each other if one branch attempted to increase its power. The founders may not have envisioned a situation where all three branches were riding high on government pensions, automatic payroll deductions from government employees via taxpayers, and lobbyist funding, thereby creating fewer incentives to look out for individual constituents. Indeed, when politicians have lobbyist money, who needs actual voters, except on one day every few years?

In short, corruption doesn't have to involve quid pro quo to result in public harm. All that's necessary is to align interests so no one in power wants to rock the boat. If you look at what's happened with gerrymandering--where the Dems and Republicans have carved up easy-to-win voting districts (in the name of racial justice, no less), it's an easy example of incentives causing corruption.

Consider defense spending. The defense budget is massive--easily one of the largest sources of government expenditures, i.e., taxpayer dollars. Many defense projects involve systems that will not be used more than a few times--making them questionable expenditures--or systems that will not be functional until 2017 and beyond, meaning such projects can afford to have further delays until America has a better balance sheet.

The defense contractors realized that they had to align incentives to keep the money coming, so they started building different pieces of their systems in different states, spreading the wealth and guaranteeing Congressional votes. Some of these projects are unnecessary, but no Senator wants to be the one who tells his district Lockheed Martin is taking its business to another state. So who wins? Defense contractors and defense employees. Who loses? The people--who have to pay the bills for these systems, which requires America to print more money, which weakens the American dollar, restricts future flexibility in spending, and/or causes inflation. Thus, taxpayers, our children, and the country suffer while defense contractors and employees run to the bank. It's not corruption per se, but another case of misaligned incentives.

There are numerous instances of these kinds of misaligned incentives, and the legal system is especially rife with them. First, who makes the laws? You think your Senator and his/her staff are in a D.C. office typing up the next draft of legislation? Usually not. Typically, it's the lobbyist who pays money to get the Senator's ear and then who gives the Senator a proposed bill of law. Who can afford lobbyists? Megacorps and large organizations (such as national unions), not Joe the Plumber or Matt the Small Town Lawyer. Can you see the problem of misaligned incentives yet?

Let me make it even more clear. Congresspersons rely on donations for re-election campaigns and happy constituents. These factors tend to favor the status quo and rich people. For instance, whom do you think has the most money to donate to political campaigns? Joe Six-Pack, Big Labor, or Big Corp? If you think Congress spends its days trying to help the little guy, just remember this: politicians still have to get elected, and to get elected, they need the majority and/or money; thus, Congress can't realistically force the majority to give anything substantial to the minority. In other words, as long as Congress makes the laws, the laws will rarely help minorities who lack substantial assets, such as people of color (generally speaking), the average American family, most small business owners, etc.

One example of corporate America's obvious influence over Congress is copyright law. The internet companies managed to get Congress to pass a law (Digital Millennium Copyright Act, or DCMA) protecting them for hosting copyrighted material on their sites. To summarize, YouTube, Google, Yahoo, Craigslist, and other internet companies get a free pass as long as they follow some guidelines. Now, you'd think Congress would try to protect the end user, i.e., the internet user, who tends to vote. Not at all. If you download a copyrighted song or TV snippet on your PC that belongs to Viacom, Viacom can come after you and sue you and receive statutory damages. If it has filed for a copyright, it may ask for its attorneys' fees, even if it hasn't suffered any actual monetary loss (it's hard to prove that companies actually lose money, because many people wouldn't necessarily have bought the song or TV show they've downloaded for free). [See 17 USC 505 for attorneys' fees provision.]

The attorneys' fees provision is especially terrible for the consumer because it creates an incentive to go after the casual internet user, even if this person hasn't caused the company more than de minimus financial loss. It's also unnecessary, because corporate America has plenty of lawyers on call it can afford to pay out of pocket--it doesn't need a fee-shifting statute to protect its rights.
But what about the small town author who writes a book, only to see someone put it online for free? I've thought about this issue, and I can't come up with a reasonable compromise involving attorneys' fees, but I'm still inclined to just remove the attorneys' fees provision. Without such a provision, copyright holders would leave individuals alone and only sue entities or individuals that caused them major damages or that had enough money to pay damages. (If readers can think of a way to allow copyright holders attorneys' fees in a way that doesn't provide an incentive to sue small-time infringers when damages are de minimus, please add your comments.)

In any case, Congress gave corporate America a sweet deal when it came to copyright laws. Why didn't Congress make some effort to protect the average internet user? Well, the people who drafted the DCMA legislation were affiliated with major internet companies. They wrote what the internet companies wanted and helped get it passed. Congress rubber-stamped the proposal and didn't seem to care enough to protect the average American. Copyright is an issue that impacts almost every average voter. If Congress didn't care enough to protect the average American on this issue, what do you think happens when other laws are passed?
Here's another quick example that shows Congress passes laws to help corporations, not consumers. Facebook users, by using Facebook, have to consent to this provision (as of the time of this publication):

"If anyone brings a claim against us related to your actions or your content on Facebook, you will indemnify and hold us harmless from and against all damages, losses, and expenses of any kind (including reasonable legal fees and costs) related to such claim."

In other words, if you post a music video on your wall, and Facebook gets sued because you posted copyrighted material, you have to pay Facebook's legal fees and damages if it loses in court. Facebook has made you, the average American, an insurer for its business. Will Facebook actually utilize this provision against one of its users? Probably not. Still, the lesson remains the same: Congress clearly cares about corporations and their lobbyists, not the average American; otherwise, it would have made such one-sided indemnification provisions illegal, or at least placed a cap on indemnification reimbursement. In the end, people who think they can change society through new laws are naive. Most of the time, a new law just gives a power-hungry lawyer who happens to know the state Governor or legislator the power to interfere in your life.

I will talk more about the legal system another time. For now, I'll just say that if more non-lawyers knew how the legal system actually worked, more Americans would be libertarians. You want to make America a better place? Start with the tax code. The tax code may be a set of laws, but it's really a system of financial incentives that happens to be codified. Right now, the tax code favors big corporations, nonprofits, large banks, and housing speculation. It doesn't help small businesses much. It doesn't help families enough. That's a shame, but at least it shows who Congress is looking out for these days--mortgage lenders, developers, insurance companies, and big corporations. Where's the anger?

Generous Benefits Will Bankrupt California

From the WSJ, 12/18/08, A4:

Calpers, which stands for California Public Employees' Retirement System, is California's pension fund for government workers. It provides retirement and health benefits to more than 1.6 million state and local public employees. From June 2007 to June 2008, the fund declined from $239 billion to $182 billion. Basically, Calpers lost $57 billion of taxpayer monies. Even with this loss, Calpers has almost $113,000 for each California employee's retirement and health benefits. This amount sounds generous, and it's certainly better than what most Americans have, but the pension is still underfunded. As a result, taxpayers will be forced to pay higher taxes to make up the shortfall, or will suffer inflation and a weaker American dollar as the government prints money to give to itself. In this way, public pensions are ticking time bombs, ready to release dangerous inflation unless something is done.

Congress and state legislatures talk about regulation, but they don't pass laws forcing cities and states to fully fund their pensions and/or to prevent borrowing money from pension funds. I remember Al Gore talking about putting Social Security funds into a "lock box," i.e. a box that is untouchable. Too often, when cities, counties, and states need money to finance a project or to cover a revenue shortfall, they dip into the retirement funds of police officers, firefighters, and other government employees. Eventually, the monies will have to be paid because a) the government employees have paid into the system; and b) the political will to reduce or deny retirement funds is non-existent. Just witness the auto bailout--if we cannot avoid printing money to give to GM and Chrysler, which lost billions of dollars annually, we surely cannot avoid printing money to give to retirees).

In addition to creating a lock box, the government needs to pare down benefits. Every dollar paid to a government employee means another dollar coming out of non-government employee pockets. Here is a quote from the WSJ story:

Like many residents who work for private employers, Ms. Nolan-Stewart, an AT&T manager, says she is astounded at the generosity of public-employee pensions. "If I were to retire, my retirement would be one-quarter of what I make today for the rest of my life," she says. By contrast, city firefighters and police who retire at age 50 with 30 years of service may retire with 90% or more of their final salary.

The WSJ (12/17/08, A1) also reported that Calpers used leverage (borrowed money) to boost returns; however, using leverage also means that losses are magnified, which may explain the fund's recent poor performance.

So Calpers engaged in a risky investment strategy with taxpayer money, and few Californians seem to care. Americans seem to have been so distracted with Iraq, they forgot about domestic surveillance and protecting our finances from government ineptitude. That's too bad, because history shows that every major empire has collapsed from within, not from an outside threat.

Alec Baldwin on Family Court

Behind Alex Baldwin's funnyman persona is a libertarian--at least when it comes to the family court system. In the Commonwealth Club's November 2008 article (pp. 45), The Ex-Files, he talks about "parental alienation" and government corruption. Most citizens think the court system is there to protect them and be fair. Mr. Baldwin's experience should hammer home the reality that court systems are not blessed with any special fairness--they are government agencies, and like all government agencies, have the same incentives and disincentives to work hard and to achieve just results.

The difference in family court, Baldwin argues, is that the incentives are aligned to work against the family and against fairness:

The whole custody evaluation system in Los Angeles is corrupt. It is bankrupt. That is the problem. The judges can do whatever they want to do, which is what you learn about all courtrooms in this country.

In other words, your case is only as good as the judge you (randomly) get. Baldwin points out that state court judges are subject to political pressure, causing an "implied corruption":

These judges are there by appointment, or they run for political office. Either way, there's a mechanism by which they can be punished if they don't get it. If they don't serve the pit boss, you make a call to Sacramento and say, "Get rid of this woman." ... So there is implied corruption in the terms that they work for these law firms.

[J]udges and lawyers are never going to help us. Schmucks like me walk in...and they suck it [your money] out of you. They think it's great. Why change that?

In other words, the incentives for lawyers to work things out are misaligned in civil litigation, and even more so in family court.

I used to work in a family law firm's offices, and the first action they usually took upon being hired was to file for a restraining order and include the worst possible allegations against the opposing side.  Allegations of physical or verbal abuse (no matter how slight) would be submitted to the Court, which expected these kinds of allegations and seemed inclined towards granting a restraining order.  So of course the other side would get one or try to get one, and now you've got these emotionally-charged allegations going back and forth, which required the use of mediators, facilitators, and numerous government employees. If you ever get divorced, look up collaborative divorce--it may be cheaper and, more importantly, easier on your soul.

Update on November 23, 2008: I found a link to Alec Baldwin's speech:

http://weimarworld.blogspot.com/2008/09/alec-baldwin-discusses-la-family-court.html/pres02.htm