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In spite of $14.2 billion in global operating profit ($5.1 billion on U.S. operations) in 2010, GE paid no corporate income tax to the U.S. Treasury that year thanks to offsetting prior losses by GE Capital (i.e., bad loans).  In spite of that unit having received TARP funds from U.S. taxpayers, the corporation was able to avoid paying any income tax. This seems like Rousseau's social contract run amuck: corporate welfere in exchange for nada.  Such a modus operendi is in line with the corporate mission: to economize in the sense of maximizing (or satisficing) what is taken in while minimizing what must go out.  In other words, a corporation aims to turn itself from a productive, lean throughput to a concentration of capital in its own right.

In terms of U.S. corporate income taxation, the extent of resources that corporations devote to minimizing what they owe the U.S. Treasury is money that could be better spent, or invested, in productive enterprise. For example, G.E. files returns in 250 jurisdictions and has a staff of 975 working in the corporation's tax department. Even if those people pay for themselves and more by reducing the company's tax liability, the company could eliminate that entire department and orient its global operations in terms of efficiency rather than taxation were income tax applied only to individuals.  The legal person "doctrine" aside, corporations are not citizens; rather, they are groups of citizens. 

Robert Samuelson suggests that the top corporate income tax rate be reduced from 35%, which is one of the highest in the world. He argues that the 15% rate in individual income taxation on dividends and capital gains should be increased. The effect would be regressive, for the top one percent receive two-thirds of all the capital gains and dividends. At the very least, the 15% is relatively low in the individual income tax system and most of the taxpayers subject to the tax could afford a higher rate.

In my opinion, Samuelson does not go far enough, for even with a lower top corporate rate companies would retain their tax departments and steer profit into countries with low tax rates (for there would still be differentials between countries). Theoretically, it does not make sense to tax both corporate income and dividends.  Furthermore, corporate income taxation treats companies as end-points rather than as throughputs. The implications of taxing individuals rather than corporations are staggering not only for more efficient productive investment, but also for attracting foreign direct investment to the U.S. In addition, public accounting firms could eliminate their tax departments and focus all of their attention on auditing--an endeavor made all the more important on account of the misleading financials on Wall Street leading up to the financial crisis of 2008.  Rather than getting headaches over the intracacies of tax rules, public accountants could devote more attention to whether it is enough to follow GAAP in giving an unqualified opinion.

In short, taxation ought not to have so much gravity in orienting corporate America.  Instead, business would do much better in focusing more on building better mousetraps. Individuals who benefit financially from the productive enterprise would be taxed, perhaps even without all the deductions that enable them to avoid being taxed. Imagine a tax-returnless system of individual income taxation involving a fixed low rate applied like a fee on any income taken in, whether from wages, salary, dividends or capital gains. Ironically, by simplifying taxation, more of it could be collected even as businesses are left to do business.

Click to add a question or comment on GE and corporate income taxation.

Source: Robert Samuelson, "The Real GE Scandal," Newsweek, April 11, 2011, p. 21.

As I was entering a “Bestbuy” store one summer day wearing shorts and a tee shirt and carrying my ubiquitous book bag (as you might expect), the security person, whom the manager later told me also works at a prison, walked after me as though stalking me, practially yelling “Sir! Sir!” Reaching me as I was talking to a salesperson who was treating me as though I were a customer, the lineback demanded to look in my book bag immediately. I stated matter of factly that I had had no opportunity to stash anything from the store in my bag while walking in the front door (after which he saw my every move).  Nevertheless, I opened my pouch for him and he was satisifed. After I left the salesperson, I reported the incident to a manager, whose “company apologizes” was belied by his curtness and saccarine politieness.

Can a company even apologize? That sounds anthropomorphic to me. Perhaps if an employee is rude in “correctly” following a company policy—such that the policy itself is odious—a manager could apologize for the store. But can a store apologize? That sounds a bit like corporate “spending” being counted as “free speech" and like a company being regarded, moreover, as a legal person. In my view, the legal person status of a company does not mean that “it” can speak and apologize. Perhaps it makes more sense to say that only the person who committed some act can apologize for himself.

In the case of my “Bestbuy” experience, the manager added insult to injury. After I told him about the security person’s behavior—the manager agreeing with me that the employee had been excessively zealous—the manager told me that typically people with book bags are, in his experience, thieves. When I objected to his assumption, he turned dismissive, accusing me even of “going in circles” in spite of the fact that I had not repeated myself at all in my one sentence reply.  The manager seemed utterly unaware (or indifferent) to the fact that he was adding insult to injury, even as he was apologizing for the company! This is a perfect example of the duplicity of corporate-speak.

A company is an economic organization. Hence, for “it” to apologize, there really must be some economic sacrifice involved; otherwise, the apology does not register in terms of what the company is. The vacuousness of “We do apologize for any inconvenience” (which we all have heard) is attested to by how easy it is for a manager to utter it while simultaneously insulting the customer (e.g., “you’re going in circles; can I go now?”). I contend that for a “company’s” apology to be valid, some economic sacrifice must be given up without the company benefitting in any way such as by a future purchase with a coupon. Customers, I contend, should indicate that the apologizing manager must put his or her company's money where its apology is; otherwise, the customer should say in like terms, "unfortunately the apology cannot be accepted as valid.” How, I wonder, would a manager or clerk react to being the recipient rather than the source of policy-speak? He or she would probably reply, “well, I can’t do anything about that.” His "can't" is probably disingenuous, as it is undoubtedly convenient, at least at the moment. The customer might reply, 'unfortunately I can't shop here again." This exchange evinces the sheer rigidity that is so ingrained in corporate-speak as well as the underlying mentality.  I suspect that businesses are so used to their customers accepting the rigidity as given (rather than as contingent or affected) that the managers and employees take their own rigidity as required, as though deterministically rather than by their free will. Essentially, I am arguing that only certain things—money and policies—are recognizeable to the managerial birds of prey, hence their “apologies” must be converted back into such terms by customers or rejected for what they are--mere attempts to pacify customers so they will buy something.  That it never occurs to a manager that the actual employee who had offended the customer ought to be the person to apologize suggests some strange surrogate type of apology is therefore valid. Just like if I offend someone only I can apologize for what I have said or done, so too only the offending employee can proffer a viable and thus acceptable apology.  For a customer to accept anything less is to enable weakness and subterfuge.

If the American financial houses on Wall Street are among the most powerful forces in American politics-- powers, as it were, behind the throne--does it make sense that the strongest bank would be politically impotent?  In other words, can a public blemish nullify the power of all that capital?

According to The New York Times, Goldman Sachs employs perhaps the country’s most well-connected stable of Washington lobbyists, and it spent $2.8 million [in 2009] to bend the ear of federal officials and lawmakers. Goldman executives and its political action committee gavve more than $24 million to federal candidates in the first decade of the twenty-first century, including nearly $1 million to Obama’s 2008 presidential campaign. Even so, the pounding in the media that Goldman Sachs took in April, 2010 left it sidelined — at least in public — as Congress moved toward a decision that could reshape the very industry it rules.  In particular, the SEC filing of charges and eleven hours of grueling testimony before Sen. Levin’s Investigations Committee left the bank a lobbyist persona non grata, if only for a day.  However, even then, the reality behind the scenes was doubtlessly very different.  Even as politicians publicly vilified the bank, they were picking up lucrative campaign contributions sourced in the bank, even if through intermediaries; any large scale electorate is notoriously bad at tracing links.  To be sure, The New York Times was reporting that Goldman Sachs was trying to find a way to influence the debate, even if it could not play as visible a role as it otherwise could have.

Goldman Sachs managers declined to comment the day after the hearing before Carl Levin's committee at the U.S. Senate. The question that the bankers were refusing to answer was on the impact that the bank's legal and public relations troubles were having on its Washington lobbying operations. Even so, one person briefed on its plans spoke on condition of anonymity because of the firm’s continuing legal and political troubles. He or she said it was still trying to push its agenda. The New York Times reported that according to industry officials, the bank had been “largely relying on trade groups, like the Securities Industry and Financial Markets Association. However, this could have been a smoke screen. The real deals could have been made behind closed doors, even by industry standards.  According to the paper, “More often, the firm — whose lobbyists and outside lawyers include such Washington luminaries as Richard A. Gephardt, the former House majority leader, and Ken Duberstein, the former Reagan administration official — has relied largely on intermediaries because politicians are worried about being associated with it, government and industry officials said.”  Members of Congress were worried about public association, but willing to be influenced through intermediaries. Therefore, even though Sen. Blanche Lincoln, who was in a tight race at the time, canceled a fund-raiser at the bank’s New York offices after the SEC filed its lawsuit, I would not be surprised that she accepted contributions by an intermediary.

Most voters are too far away from Washington to get the real scoop, and journalists who want to continue with their career are not apt to dig too deep. We are left with the surface, and can only guess as to the subterranean dynamics.  It seems to me that traces of the underground rumblings can be discerned in lines such as “at least in public.”  We are left wondering how deep the wells of gold run.  Perhaps only the goldman knows.  The actuality can be far different than appearances.  If possible, a study on the real influence of Wall Street in Washington would be very helpful. For this reason, it is apt to be a difficult task with many self-interested obstacles.  In any case, we ought not be so incredulous as to rest on the public appearances. Even as Lloyd Blankfein was testifying, senators turned increasingly friendly to him–with the exception of Carl Levin and perhaps John McCain.  The Democratic side in particular almost made excuses for the CEO, saying that any number of firms should be there with him. Those senators had given their soundbites to be picked up at home; it was time to make sure they were not cutting off one of the ruddy fat hands that feeds them. This expression comes from Nietzsche’s description of businessmen and their propensity to overreach. 

To be sure, Nietzsche is no advocate of modern morality; he viewed it as a defense of weakness.  Weakness cannot be other than weakness, he writes. So too, strength, he writes, cannot be other than strong.  So I contend that we ought to take reports of the political impotence of Goldman Sachs with a rather large grain of salt (or gold, in this case).  He or she who has the gold makes the rules. There is no natural law stating that this process must be transparent.  My question is: can we, the American public, get to it, or does the well of gold run too deep for our patience and perseverance?

Source: http://www.nytimes.com/2010/04/29/business/29lobby.html

In his commentary in The Wall Street Journal  on May 6, 2010, Michael Boskin went over the disadvantages in levying an income tax on corporations. Within his argument, he observes, “Of course, the corporation is a legal entity; only people pay taxes.”  In so doing, he transcends, if only for a moment, his own approach that is oriented to pros and cons.  His observation is significant, and it gives us a launching pad of sorts by which we can approach the corporate income tax as a phenomenon (rather than simply assessing its utility).  To be sure, utility or the lack thereof can lead us to this level.  For example, double taxation (i.e., taxation of a corporation’s earnings, and then of dividends on investors’ incomes) suggests that only people should pay tax.  Treating a “legal entity” as if it were a tax-payer is unnatural, and thus gives rise to the double taxation problem.  It is interesting that Boskin uses the word “entity,” which is not the same as “person.”  That is, to argue that corporations should not be taxed directly, he seems to assume that he needs to deny the legal person doctrine.  To be sure, it would be harder to argue that human rather than only legal persons should be taxed; to treat corporations as entities expands the distinction and thus is more permitting of Boskin’s argument.

I contend that Boskin was correct in referring to corporations as legal entities.  To treat or consider a corporation as a person in any sense is to anthropomorphise an abstraction.  Put another way, an association of human beings does not constitute in itself a person even writ large. To presume otherwise is to make a category mistake.  This error is evident when someone says, “GM says X,” or “Ford is doing Y.”  Only human beings can talk (at least in a human language).  Furthermore, an organization does not “do” things; rather, people within it are the agents.  So too, an organization cannot be a moral agent.  This statements might as be ignored, for all the sloppy anthropomorphism going on. It is no wonder that corporations are typically regarded as taxpayers.  As long as we limit our arguments to pros and cons (i.e., utility), we will miss our deeper errors or category mistakes.  Even if such faults are covered over by societal blind spots, the errors are nonetheless errors.

In 2010, the Inspector General of the US Interior Department made public a report on the federal Minerals Management Service, which regulates the oil industry and profits from leases to it.  In addition to this glaring conflict of interest, MMS has apparently not only been “cozy” with the industry it is regulating, the two have been as one.   One inspector said, “We are all the oil industry.”  In other words, the problem goes beyond bribes. Larry Williamson, the M.M.S. Lake Charles, La., district manager, told investigators, “Obviously, we’re all oil industry. We’re all from the same part of the country. Almost all of our inspectors have worked for oil companies out on these same platforms. They grew up in the same towns. Some of these people, they’ve been friends with all their life,” hunting, fishing and skeet-shooting together. As another inspector wrote in an email, gifts aren’t necessary because he wouldn’t write up his friends.  Indeed, some of the inspectors and oil company managers had known each other since childhood–which raises a question about the inspector-hiring process. It would appear that the oil companies’ managers have been actively involved in the hiring at the federal agency. “We’re all oil industry.” Acting Inspector General Mary Kendall said her greatest concern is the cozy relationships between federal inspectors and oil companies, and how easily inspectors move back and forth between industry and government. For example, the report found one worker conducted four inspections on an oil company platform while he was actively negotiating for a job with that same company. Perhaps the most damning allegation was that some inspectors allowed oil company workers to fill out the federal inspection forms in pencil, after which the inspectors would use their pens to trace the pencil-marks and then sign the forms as it it were their own work.  “We’re all oil industry.”

Unfortunately, MMS is not the only federal regulatory agency to conflate itself with its “clients.”  Like MMS, the FAA (Federal Aviation Administration) has conflicting directives: to regulate and promote air travel within the US.  Even though a law stripped the mission of its “promotional” language, a footnote in the statue says that the elimination of the language should not change how the FAA operates because it was done to change the public’s perception.  Even after that law went into effect, the FAA referred to the airlines as its “customers” or “clients,” and stressed voluntary safety measures by the regional airlines in cooperation with the agency.  Sadly, the agency did not stand up for public safety in urging Congress to make the major airlines jointly liable for negligence at their regional partner airlines. Like MMS, the FAA’s problem goes beyond its own structural conflict of interest.  In particular, the FAA is too cozy with its “clients.”  Perhaps working at the FAA is really just a prerequisite to getting a nice job with one of the airlines. Perhaps political pressure from the airlines bears down on the head of the agency from the White House.  In any case, MMS and the FAA are sufficient to suggest that there is a structural problem in the American regulatory system centered on the relationship between business and government.  Such a state of affairs points to a greater need for management of the executive branch of the US Government. Perhaps the President should give more attention to affairs of his branch and less to influencing legislation.  The Congress is not the only branch subject to the influence of industry. In a word, there is too much of a plutocracy (rule by the wealthy) in the US system of governance.

It is natural that the more powerful have their way at the expense of the less powerful. Thomas Hobbes and Friedrich Nietzsche wrote as much. But Hobbes assures us that life in the state of nature can be  ”solitary, poor, nasty, brutish, and short.” So we have instituted government, for the purpose of staving off the natural proclivities of power to run down stream.  In regulating business, we are essentially building dams to hold back some of the force of the water. Our dams are anti-entrophic, holding back the inevitable.  Even so, we deem it as worthwhile to forestall the inevitable.  It is unfortunate that so much thinking is necessary to design an effective device that merely puts off the day when the river will meet the sea.  Anything we mortals build is itself mortal, or finite in duration, yet we construct our governmental structures ultimately to stave off death at the hands of the powerful and greedy.  Hence, we create checks and balances so the powerful created by our device do not become the very problem that our device is intended to put off.

In the case of regulating business, the natural state of more wealth to dominate less wealth is the problem as inspectors are so easily coopted by the regulated. In other words, the regulated are more powerful or inticing than are the principals (and principles) of the regulators.  This is perhaps an intractable problem, as the problem itself is occasioned by our resistance to the natural downward flow of power. Perhaps, though, we can at least construct a better dam.  One idea is to make it illegal for regulators to work for the regulated (or to be offered or accept jobs with the regulated as an intermediary) for a long period of time (and getting agreements by other countries to enforce this law on their own books so American regulators can’t simply bypass this stricture by living in Paris or Munich). However, favors have a way of getting around rules, so our dam would likely still have some leaks.  Plugging holes by one regulation at a time is a recipe for regulatory recitivism. We ought to remember this in dealing with the financial crisis of 2008 (i.e., banning particular financial products after they have been implicated, when there are always new ones).

I believe that more thinking is necessary on how to keep the regulators from being dominated by the regulated. I suspect that a viable “solution” might come from thinking about human nature relative to intended and unintended incentives.  Specifically, thinking in terms of checks and balances wherein ambition is pitted against ambition may allow us to achieve a greater degree of protection for the pubic against the greed of the powerful in business. In other words, we might apply the checks and balances in the separation of powers in the US Government to the relationship between the regulators and regulated. To be sure, the regulators depend on information from the regulated, but the regulated depend on information from the regulators as well (i.e., on the regulations). The task before us is to keep these dependencies separate by natural forces rather than by mandates that go against those forces.  That is, perhaps we can use the natural dynamic of power against itself.  This is the key mechanism of American government not only within the US Government, but between that government and those of the several states as well (i.e., federalism).  Perhaps someone will be able to apply this invention to the field of regulation. Otherwise, we can expect more financial crises as occurred in September of 2008 and more oil-rig explosions such as the one in April of 2010.  The profit-interests of private firms is not the same as the public interest, and unfortunately the latter is not as strong as it is dispursed rather than concentrated. Hence the concentrated wealth can buy the representatives of the public interest and thus their agents.  It is essentially about the nature of power to flow down stream.  Hopefully, we will do a better job of directing the river without the water deciding its route.

Sources: http://liveshots.blogs.foxnews.com/2010/05/25/federal-inspectors-took-gifts-traded-porn/ ; http://www.pbs.org/wgbh/pages/frontline/flyingcheap/?utm_campaign=homepage&utm_medium=bigimage&utm_source=bigimage ; http://www.nytimes.com/2010/05/26/opinion/26dowd.html?adxnnl=1&adxnnlx=1274889642-3gTN9/LwwDxZ1pT1FF7lVw

In terms of corporate governance setting executive compensation to align the employee's incentives to the financial interests of the company even beyond his or her term of employment, it is apparently quite easy to go overboard. This can include severance packages for top managers--packages that may not reflect the performance of the executive. At the very least, it would appear that corporate lawyers are not writing very good contracts. Worst yet, insider board-management friendships may mean that the gap between achievement and severance pay may be intentionally wide. Sadly, the innocent non-management investors whose interests are not adequately represented in the board room pay the price, even if they don't perceive it on an individual level.  Even so, the lack of fairness alone calls for an end to the insider luxuriating.  The case of BP, whose rig exploded in the Gulf of Mexico in 2010, provides a good case study.

BP’s CEO Tony Hayward lost his CEO position—or he wanted out—at the tune of $1.6 million per year to be a non-executive board member at BP’s Russian joint venture. In addition, he could draw on his pension valued at over $17 million  and could keep all of his BP stock options that could be worth millions if BP bounces back. At the time of the announcement of his stepping down and BP’s 2010 second quarter loss of $17 billion, BP Chairman Carl-Henric Svanberg said in a statement: “The BP board is deeply saddened to lose a CEO whose success over some three years in driving the performance of the company was so widely and deservedly admired.”  The statement evinces either an attempt at PR or a state of denial.  Hayward became CEO promising to put safety first.  To say that he succeeded in his own priority would be to ignore facts.

In testifying before the investigative subcommittee of the US House Committee on Energy and Commerce a month after the explosion, Hayward stuck to his script in saying he is for safety.  “Since I became CEO, we have made a lot of progress [on safety],” he said. ”We have focused like a lazer on safety.”  When asked about the reports from company employees of unsafe corner-cutting at Deep Horizon, Hayward replied that the company’s investigation is in progress. ”I haven’t drawn a conclusion,” he said to Rep. Waxman the full committee’s chairman. Waxman replied, ”you are stonewalling and evading responsibility.”  Challenged by Rep. Peter Welch to point to even one bad decision made by BP, Hayward said, “I’m not able to draw that conclusion at this time.” Asked by the subcommittee’s chairman, Rep. Stupak, if it was improper for BP to have overruled the contractor’s recommendation that BP’s intended changes to the blowout preventer not be made because, as Hayward himself had written, the equipment is the failsafe mechanism (i.e., if it fails, nothing else can stop the oil from gushing out), Hayward replied, “the blowout preventer is the failsafe mechanism.”  In spite of BP’s role in the disaster, Hayward wasn’t giving anything away in his testimony even though being more forthcoming would have helped the committee write legislation to prevent such a disaster in the future. Another representative asked Hayward for his opinion on skipping tests at Deep Horizon. Again, he said he could not answer the question until his company’s investigation was complete because he wasn’t there.  “Because you lawyer told you not to answer?” the representative asked in reply. It is not beyond reason to suppose that Hayward’s lack of opinion on matters pertaining to his business is part of a larger effort of the people at BP to evade the charge of negligence, which would increase the company’s financial liability. In other words, BP’s management was still acting in their own interest, as well as that of the BP stockholders—even in the midst of culpibility for a major disaster. This can be seen in the red-tape in BP’s claims process.  In spite of the company’s role in the disaster, the management was oriented to determining “legitimate” claimants.

Such conduct is similar to that of the banks that fought more regulations in the wake of the bank’s own culpability in the financial crisis of 2008.  Even amid the culpability, the banking lobby owned Congress (according to Sen. Dick Durbin).  In treating the fiduciary duty to the stockholders as absolute, the banks and oil companies evince not only a reductionism in the face of a larger business environment, but also an apparent selfishness that borders on a personality disorder.  Even if such managers are vaunted by their stockholders, there is the question of whether corporate governance has a susceptability to rewarding managements that screw up.

Hayward claimed at the hearing that he set the tone from the top at BP (in stressing safety). Given the pattern of continued safety violations, including those at Deep Horizon, his function doesn’t appear to matter much.  Accordingly, one representative asked him what his bonus would be for 2010.  Apparently his bonuses were not always in line with the profitability of the company.  Having made safety his priority is particularly telling, given BP’s continued track-record. In terms of corporate governance, if a management of a company under which shirking safety has resulted in a disaster even as the CEO has made safety his priority is not removed by its board, the owners of the company have a legitimate grievance against their board members. It is difficult to say whether Hayward was pushed out or wanted out. He had become public enemy number one in the US.  Even if he was ousted, the financial conditions of his ouster were out of sync with the results of his “leadership” (e.g., a $17 billion loss, and a huge contingent liability in the Gulf).  The disjunction between executive compensation and the executive’s results reflect very badly on corporate governance itself.   For any BP stockholders bemoaning the drop in the company’s stock price and the deminished or delayed dividends, removing the strong bias in corporate governance itself that is in favor of incumbant managements (e.g., proxies, proximity to the board, the business judgment rule) might well be a priority in the wake of the disaster in the Gulf of Mexico.

Source: http://www.msnbc.msn.com/id/38423486/ns/business-oil_and_energy/

On March 1, 2011, the European Court of Justice, the EU's Supreme Court, declared illegal the widespread practice of charging men and women different rates for insurance, setting in motion an overhaul of how life, auto and health policies are written across Europe. Although tied to commerce, the ruling involves non-economic elements as per the high court's citation of the EU's Charter of Fundamental Rights, which enumerates 14 categories on which discrimination is prohibited; sex is the first. A separate provision states that "equality between men and women must be ensured in all areas." Because fundamental rights go to the core of what a political domain stands for, at least in the case of a republic, an implication is that the EU is indeed a political federal state, rather than simply a WTO for Europe. The fact that the states of the EU must abide by the ECJ's ruling on the fundamental rights means that some governmental sovereignty has indeed shifted from the state governments (and their respective constitutions) to the EU.  Like the US, the EU is a federal system of governance characterized at its core by dual governmental sovereignty, which in turn is sourced in popular sovereignty.  Other, less fundamental, implications can also be drawn from an analysis of the ruling.

Ironically, the court's decision means that women drivers will pay higher premiums (possibly up to 25% more) to be treated equally; premiums for young men would fall. Hitherto, European insurance companies could use the statistical correlation between being male (and young) and risky driving to charge young men higher premiums.  Positive correlation is not causation, however; there is no known causal relationship between a female biology and relatively risk-averse driving. The advocate general, Juliane Kokott, argued that there was "no compelling evidence that women live longer or drive more safely because they are biologically women. Underlying factors affecting longevity or prudent driving—such as drinking habits or the desire to engage in risky behavior—might be associated statistically with one or other sex. But that, she said, doesn't mean insurers can choose a price for a particular customer based on sex," acccording to The Wall Street Journal.

Generally speaking, David Hume argued in the eighteenth century that we don't really understand causal connections even when we think we do. In other words, we tend to make assumptions--essentially over-extending our minds from what we do in fact know. I would add that presumption itself might be hardwired in the human mind even in simply being able to have a coherent (i.e., unitary) consciousness.  Unavoidably, we make assumptions about what we perceive in order for the world to make sense.

In addition to the political and philosophical implications, the case provides an illustration of the nature of business regarding regulatory obstacles. In short, it is in the nature of a profit-seeking machine to get around the dams.  The Wall Street Journal reports that European insurers "had been bracing" for the March 1 ruling. Philip Jarvis of the law firm Allen & Overy in London "says insurers may have to collect more individual data on policy holders to compensate for the loss of sex as a quick dividing line. That could accelerate, for instance, the adoption of vehicle "black boxes" or other devices to plug into onboard diagnostic computers to give insurers a direct look at driving habits." Such a closer tie between a driver's premium and his or her actual driving would be fairer than going on market-segmentation correlations (i.e., groupings).  However, to the extent that correlations are more cost-effective than equipping every car with a black box, insurers could simply find other variables that are not gender but essentially give the same results. For example, if women tend to buy a product, insurers could use owning that product in lieu of gender in pricing premiums. That would probably set off another round of legal proceedings, but it would give insurers additional time under essentially their old rubric.  In short, I contend that business is inherently oriented to getting around things in its way profit-speaking. A regulation that a firm cannot use strategically (i.e., giving it a comparative advantage over competitors less well-equipped to comply) is apt to be viewed from a managerial standpoint as a challenge to get around with the least inconvenience or cost. To be sure, there was no evidence of such behavior as of the ECJ's March 1st ruling; I am merely pointing to how it might look.

Source: http://online.wsj.com/article/SB10001424052748704506004576173832873341162.html?KEYWORDS=EU+Closes+insurers%27