Amitai Etzioni Notes

Warning: Profit-Making Colleges Are After You

Here we go again. Corporations are making money not by producing a product and marketing it, but by loading consumers with loans they cannot pay and then sticking the taxpayers with the bill. Only this time, it's not houses and mortgages but "higher" education and student loans.

Here's how it works. Fly-by-night "educational entrepreneurs" -- people who run profit-making colleges -- buy small liberal arts colleges that are on the verge of collapse because of financial difficulties. This provides the profit-makers with coveted regional accreditation, which is needed to allow their students to take out federal loans. The profit-driven colleges then set up boiler-room style "recruitment" offices to hunt and pressure people to enroll and take out loans, promising them bright futures and successful careers. Former recruitment officers have reported that they were under intense pressure to meet quotas and enroll students, regardless of their readiness for college-level education. Enrollment counselors were told, when on the phone with prospective applicants, to "create a sense of urgency" and "push their hot button," all tricks typically used to sell penny stocks. (All of this was vividly documented by PBS's Frontline in an episode entitled "College, Inc." You can watch it here.)

The education students receive at for-profit colleges bears little resemblance to the kind they would get at a true liberal arts college. Neither does it resemble the collegial image the for-profit colleges love to project. Professors at these schools often work on short contracts. There is no tenure. The executives make staggering salaries. Most students are taught online, often by poorly qualified professors who have very limited contact with the students. A 2007 New York Times article revealed that graduates of the University of Phoenix, the largest of the for-profit schools, had bitter complaints about "instructional shortcuts" and "unqualified professors." Students in an average course at the University of Phoenix spend about half as much time with professors as students in traditional universities do. Moreover, the university was fined for falling short of the minimum scheduled time required for receiving federal aid.

The schools' stripped-down curricula and poor instruction often make for nearly worthless degrees. When students graduate from these colleges, many cannot find jobs -- or at least not the kinds they were promised -- and eventually, many of them default on their loans. The federal government has estimated that for-profit university students, who make up just 10% of all American college students, account for about 44% of all student loan defaults. When the students default, you and I pick up the tab. But note: the money does not go to the students, but to the shareholders of the for-profit colleges.

The taxpayers are putting up the money and absorbing the losses, but the shareholders are making out like bandits. Bloomberg recently reported that in fiscal year 2009, the University of Phoenix reaped nearly $3.8 billion in revenue, and 86% of it came from the U.S. Department of Education.

In response to the growing problems, the U.S. Department of Education recently proposed new rules requiring for-profit universities to justify the federal support they receive by demonstrating that their graduates are actually finding jobs. But a swarm of industry lobbyists pressured the Department of Education, which just announced that it has delayed settling on a specific definition of the new rules, regulations which might turn out to have only limited influence over profit-making colleges.

The profiteers argue that they serve a large number of poor and minority students. These individuals could be served much better by transferring the funds the executives at "College, Inc." are dedicating in large part to their shareholders, to traditional four-year colleges and community colleges. Instead the administration cut the funds originally planned for community colleges from a proposed $12 billion over 10 years to $2 billion over four years. If these funds were to be restored to the proposed levels, these students could get not just an education, but a better one.

Shameless

If you believe that corporations would be willing to make a little less money in order not to put the nation - their nation - at risk, you should read Richard Clarke’s excellent, just-issued book, Cyber War.

As Clarke reports, prior to the 1990s, the Pentagon made extensive use of specialized software designed by in-house programmers and a few defense contractors. But under pressure from libertarian ideologues and business’s lobbyists, the Pentagon began to use commercial software instead – in particular, Microsoft software.  However, it turned out that Microsoft had built a low-cost brand and based a principle of “one format for all” –  rather than software that was tailored to special security needs. Problems soon arose, including, as Clarke recounts, a 1997 incident when the USS Yorktown, a Ticonderoga-class cruiser whose ship operations were administered on computers running Windows NT, was rendered inoperable after Windows crashed. “When the Windows system crashed, as Windows often does,” Clarke writes, “the cruiser became a floating i-brick, dead in the water.” After this and a “legion of other failures of Windows-based systems,” the Pentagon considered a shift to free, open-source operating systems like Linux. The code of open-source software can be altered by the user, and so the government would be free to change the software without interference from companies jealously guarding their design. It is also free.  

Such a switch, though, would have been disastrous for Microsoft’s lucrative dealings with the government. The company was already fiercely opposed to regulation of its products’ security; it did not want the added delay and cost of improving its software in order to decrease its vulnerability. If the government switched to open-source software, it could make the improvements itself – but doing so would deal a major blow to Microsoft’s profits. So Microsoft moved to prevent the government from exploring any alternatives. It “went on the warpath,” writes Clarke, threatening to “stop cooperating” with the government if it adopted an open-source platform. It made major campaign contributions and hired a small army of lobbyists. Clarke outlines their purpose as: “don’t regulate security in the software industry, don’t let the Pentagon stop using our software no matter how many security flaws it has, and don’t say anything about software production overseas or deals with China." (China security experts feared, could plant logic bombs and malware into the software.)

Clarke reports that Microsoft insiders admitted that the company “really did not take security seriously,” because “there was no real alternative to its software, and they were swimming in money from their profits."

Nothing has changed since these lines were written last year – and a sitting-duck Navy cruiser is just one example of security risks caused by private corporations’ consistent practice of preferring profits over protecting the nation.

In 2007 an unknown intruder infiltrated the networks of the Departments of State, Defense, and Commerce, and all of the military agencies. The intruder stole an amount of information roughly equal to the entire Library of Congress.

In addition to the theft of sensitive information, a successful cyber attack could dismantle America’s power supply for extended periods of time. Conducting a test, the Department of Energy found that it could hack into a 27-ton power generator control, and remotely causing it to destroy itself. (The generators are run by private companies who are not subject to regulation forcing them to secure their sites – sites which can be accessed and directed using a normal Internet connection.)  The utility companies’ resistance to cyber security regulation echoes the position of Microsoft, which has stymied the government’s efforts even while expanding its business into government activities.

When it comes to cyber attacks, the bottom line for the public is increased defense. But again and again, private corporations have demonstrated that they have a very different bottom line in mind.

Should Cool Obama Warm Up?

The political mavens who argue that President Obama has to be more expressive are barking up the wrong tree. The real question is if Obama has deep feelings (other than for his family) -- or is a cold fish. If his blood does not boil when Republicans and conservative Democrats, in the same breath, refuse to extend unemployment benefits but further cut taxes for business; when he finds out that mine owners and oil companies bribe regulators rather than protect the lives of their employees; if he cannot feel the pain unemployment still inflicts on us rather than deficits -- then he should not fake it and suddenly turn demonstrative.

President Reagan got it right when he responded to a suggestion by image maker Michael Deaver. Deaver urged the president take off the jacket of his suit, swing it over his soldiers, and walk into a press conference much more informally then he had up to that point. Reagan responded saying that "this is not me," that such moves would make him uncomfortable, and that voters would sense it -- even if they could not verbalize their unease.

Ditto for Obama. If he suddenly started shedding tears, say, for the hundred of miles of beaches that are about to be devastated, he will not gain support but lose one of the few things that he has going for him -- the people's sense that this is a man who has integrity. Cool but honest; restrained but thoughtful.

All this holds only if Obama's heart is as cold as he comes across. However, if deep in his chest there are buried some strong emotions, if he is holding back because he believes it is uncouth to voice one's feeling; if he keeps these feelings under the hood because he long ago learned not to fall prey to them -- then the time has come for some quick lessons by one of his many method-acting friends. Then he can learn to reach into his inner self and draw on these well-concealed emotions and air them. We (and he) would all be better for it.

In short, all those mavens -- from the Washington Post's David Broder to Maureen Dowd at the New York Times -- who insist that Obama should wear his feelings on his sleeves, must first find out: does he have any? I believe such emotions are to be found -- though the president has worked long and hard to convince us otherwise.

The NPT Test

Today the representatives of 188 nations (give or take a few) assembled in New York City to debate ways to revise the Nuclear Non-Proliferation Treaty. The issue could not be more important. As President Obama's new Nuclear Posture Review declares, the greatest threats to global security are not the old Cold War adversaries but rogue states armed with nukes and terrorists with access to such bombs or the materials from which they can be made. Moreover, the NPT is severely challenged by Iran, which, the IAEA has repeatedly reported, is not living up to its obligations under the treaty. Other nations with nuclear ambitions are watching to see how the international community will react to Iran's violations, as they figure out their own military futures.

If one examines previous meetings of the NPT signatories, one does not find them very reassuring, to put it mildly. During the last meeting of this group -- which includes representatives of most nations of the world -- those present debated the agenda for two weeks, and then went home.

This time the meeting is viewed with special interest because President Obama is seeking to garner support from many nations that in the past were very critical of the U.S. and other nations that already have nukes for not living up to their commitment under the NPT, namely to give up their nukes. President Obama thus declared that indeed zero nukes is the goal, and showed that he means business by working out a treaty with Russia that would scale back the number deployed on the top of launchers. He also obtained a measure of new support from a recent meeting of 47 nations in Washington, to better secure the remaining nukes and blend down the materials from which they can be made.

How is one to assess the achievements of the NPT conference? I predict that much attention will be focused on the posturing of various nations (Iran is a member), criticisms of the members of the nuclear club (who still have enough nukes to kill most everyone three times over) and the nations that did not join the NPT (Pakistan, India, and Israel). Possibly some progress will be made in passing a resolution that urges the member nations to endorse the so-called "Additional Protocol," which widens the scope of IAEA inspections. However, the true test of the 2010 NPT conference lies elsewhere.

The NPT has one major, debilitating flaw. It has a loophole so large that aircraft carriers can sail through it unnoticed. The NPT allows a nation to build nuclear reactors using highly enriched uranium, which is weapons-grade material, as well as to build the facilities needed to enrich additional uranium to this level -- as long as the nation claims that these materials are to be used for peaceful purposes. The nation is then entitled to send a notice that it is quitting the treaty and three months later do so, taking with it all these facilities, and legally begin making bombs. A nation hence need not cheat, hide its bomb making from inspectors, or face criticism and possible UN sanctions. All it takes is basically a postcard.

Thus when one evaluates whether the NPT review conference is truly succeeding, or mainly dealing with atmospherics and debating points and possibly some secondary issue, ask whether this loophole is closed. My expectation? Do not hold your breath, lest you turn very blue.

The Deficit Trap

The Obama Administration is planning to start cutting the deficit soon for economic and political reasons. To now even merely discuss tax raises, expenditure cuts, and increases in interest rates that are entailed will slow the recovery. We know what must be done; it does not require long preparations. And there is no sign that the feared inflation that deficits are said to cause is anywhere in sight. True, once inflation settles in, it is difficult to eliminate -- but it starts slowly. There is plenty of time.

Note that both Carter and Clinton fought to balance the budget and cut or capped social programs -- only to allow the Republican administrations that followed to provide huge tax cuts to those better-off.

As to politics -- whatever Obama does, the GOP will complain that the deficit is too high and make political hay out of the tax raises and benefit cuts. As to the voters -- while they tell pollsters they fear deficits, they hate increased taxes and benefit cuts many times more.

Last but not least, how much deficit is bad for the economy is far from clear.

In short, for now, worry about those without jobs, not those who are crying about deficits.

Amitai Etzioni is a University Professor at the George Washington University. To contact him, write icps@gwu.edu. www.gwu.edu/~ccps/securityfirst

Canary in the Coal Mine: Student Loans

The Democrats are caught between the need to set up structures that will prevent future meltdowns and the pressures they face from well-heeled Wall Street-based interest groups. They are under cross-pressure to act in the public interest and to survive in the political system: those who displease groups with deep pockets face tough re-election campaigns, as their opponents will get the large amounts of funds needed these days to run for office.  Hence, despite all the talk about new regulations, surprisingly little is happening.

Student loans serve as a sort of a canary in the dark recesses of Washington politics. If the Democrats cannot stand up to private sectors here, they are extremely unlikely to persevere elsewhere. The issue is very simple. If the Democrats cannot show the public that the existing arrangement constitutes an out-and-out raid of the public treasury by a few investment houses and banks -- and that anybody who opposes reform should be booed out of office -- do not expect them to be able to do so on the much more complicated issues of credit swap controls and regulations of derivatives.

Since 1965, the federal government has provided funds to private lenders through the federal Family Education Loan Program.   The government gives loan money to private lenders and guarantees 97% of the loans, ensuring that the private lenders loan virtually without risk. Last year, these private lenders made $56 billion in loans to students.  They pocketed huge profits without providing any service.

On February 26, President Obama proposed that instead of going through private lenders to borrow money, students should borrow money directly from the U.S. Department of Education, eliminating the role of the private lenders. By early July, the chairman of the House Education Committee had endorsed President Obama's plan, which, projects the Congressional Budget Office, would save up to $87 billion in the next ten years.  On September 17, the House of Representatives voted 253 to 171 to put this plan into effect.  It is eight months later but the Senate has not acted, while all the time it has been shedding tears about the mushrooming deficits.

As I said, if this bill cannot fly through a Democrat-controlled Congress, do not be surprised if little else opposed by large and well-endowed private interests will see the light of day.  Even if the bill passes, it will be so diluted and further watered down after it is enacted that it will end up basically as a reform in name only. Watch the canary and see whether the toxic clouds are lifting or closing in.

Obama’s victory? Give me a break.

If this is a victory, I sure don’t know what a defeat would look like.

A July 29th New York Times headline states, “In victory for Obama, House panel approves Restraints on Executive Pay.” First, you should note that an approval by a panel and a token will buy you a ride on the subway. By itself, it is not worth much. The House has to approve it, and – given the lobbies lined up — it may not. More fatally for the bill, the Senate is quite unlikely to support such an anti-Wall Street move.

Wait, wait, I am just warming up. The bill does not limit any one’s pay by one penny. It merely allows shareholders to vote on the matter. If and when they do – the vote is not binding! That is, the corporations are free to pay their executives all they want, anyhow.

You may say the corporations will be embarrassed to pay through the nose after their shareholders vote not to grant monumental pay raises. However, so far there have been no signs, no hints, that these Wall Street firms are embarrassed by anything.

Finally, you should know that unless limits are set on the total compensation of executives, all such a bill—if enacted, if acted upon, if heeded—will lead to is just more gaming.

Here is one method of gaming that should give you a feel for all the others. I was a guest of a CEO of a very large insurance company. He even gave me a ride on his private jet. I asked him how much he spent last year on the entertainment of customers, fellow workers, and politicians. He responded with a wide smile: “About 300 dollars.” When he saw that my jaw dropped down about as low as it goes, he added with a chuckle: “One of my assistants makes all the arrangements and signs on the checks and credit card slips with his name.”

The fact that the CEO felt free to tell me all this shows you how impressed he and his friends are by Obama’s “victory.”

Progressive Security and Conserving Rights

   

There is no reason for the Democrats to allow themselves to be painted again as the party that is weak on defense, an image that will haunt them when the next terrorist attack hits. Nor is there a reason that security and the protection of rights cannot be squared. One should not take lightly the marker that Cheney put down, just because so many good people hold him in very low regard. Republicans, and many other voters and our allies overseas, will ask “Did the Democrats neglect security?” when we are attacked again.

President Obama’s response tries to split the difference by drawing legalistic distinctions. He is closing Guantanamo, but is keeping it open, or least holding the detainees there for now -- maybe some other detention location or shipping them to Saudi Arabia will follow. He has divided the detainees into five groups, each of which he hopes to grant a different level of rights, enough to make even the eyes of a law student blur over. He is closing the military commissions by reopening them under modified rules. There must be, there is, another way.

Democrats ought to start by making it plain that Cheney and his associates, far from making us secure, left us woeful exposed.  There are several major security threats that were largely ignored  by the Bush-Cheney Administration. It is the Obama Administration that is attending to these threats, and in ways that progressive people have little reason to oppose.

The threats include, first of all, the dangers posed by cyber terrorists to both the government and the private sector. Given the way U.S. computer networks are now exposed, little information—whether it concerns security or the economy—can be kept confidential. Moreover, cyber attacks can readily disrupt key elements of US infrastructure, such as air traffic. In 2008, hackers breached government computers and planted harmful software 5,499 times.  Cyber spies stole information on the Defense Department’s Joint Strike Fighter. It was left to Obama to pay the proper attention that this issue commands by appointing a cyber security czar, a long overdue step in the right direction.

Equally exposed is the electrical gird on which U.S. factories, offices and homes all rely. Software programs were found to have been planted in the U.S. electrical grid that could be used to disrupt the system in the future. An experiment in an Idaho demonstrated that hackers could command an electricity-producing turbine to spin in ways that would cause it to fly apart. Another security matter the previous administration did not address.

Finally, very little has been done to prepare for  bioterrorism. A 2008 Congressionally mandated independent commission report found that a biological attack is more likely than a nuclear terrorist attack. It is widely agreed that Al-Qaeda has tried to develop a bioterrorism capability, and a January 2009 report indicates that terrorists in Algeria may have been stricken by biological agents with which they were working, possibly the plague. Dealing with this threat has also been left largely to the Obama Administration.

Some may argue that although advancing these security measures violates no rights, indeed it helps protect them, merely championing new and powerful security measures amounts to fear mongering. However, the measures that are needed have the great merit that they should be introduced even if no terrorist attack is feared to occur. Enhancing cybersecurity is essential to protect our privacy, trade secrets, and intellectual properties. A smarter and more reliable grid is needed to promote energy conservation. And many measures needed to protect us against a bioterrorism are no different from those needed to respond to a pandemic.

In short, any suggestion that Cheney and company made us more secure and that the Obama Administration is neglecting our security has no basis in the facts.

At the same time, there are several key changes in security policy that civil libertarians favor and that no one in his right mind can claim undermine our security. For instance, instead of continuing with indefinite detention without review, a gross violation of one of the most profound foundations of liberty—habeas corpus—the term of confinement of each detainee should be reviewed every year or so to determine whether it is safe to release the person, as is done for many sex offenders. The Supreme Court examined that form of detention in Kansas v. Hendricks (regarding the constitutionality of Kansas’s 1994 Sexual Violent Predator Act) and found it constitutional.  There is no reason to accord terrorists more rights than to American sex offenders.

Similarly, it is hard to see why we should not replace the military commissions with a national security court, as suggested by the current U.S. Justice Department Deputy Solicitor General Neal Katyal, or better yet with a national security review board. Those reviewed by this body should have access to a lawyer of their choosing from a list of lawyers with security clearances. And they should be able to appeal the decision to a second, higher ranking, review board. Other adaptations can be made, such as not  allowing incriminating statements to be thrown out on the basis of a suspected terrorist not having been read his Miranda rights, in the heat of a battle.  But one can still ensure that those detained will be judged by some independent body that will fairly determine whether they indeed are a security risk or should be released.

Other measures can be readily discerned if one does not approach the matter with attempts to parse each measure so that it address both sides of the issue. There are some security measures this administration can and should take, and several ways rights can be restored, without so much fudging.

Retire Admiral Mullen

My original timetable called for President Obama to retire Admiral Mullen, Chairman of the Joint Chiefs of Staff (the highest ranking uniformed military commander) on Jan 20 at 12:01 pm -- as quickly as possible after the new president took his oath of office. I then considered that one must first find a suitable replacement. President Obama should make it clear that he will not tolerate military officers publicly denouncing his policies, not to mention undermining an agreement the United States and the Iraqi government just worked out of after agonizing negotiations.

Mullen told reporters on November 17 that that the withdrawal must be driven solely by conditions on the ground, and that the soonest all US forces could be safely withdrawn from Iraq is "two to three years." (The next day Mullen indicated that he would carry out any directions from the new president once he takes office.) Officers like him need to be reminded of a basic lesson of democracy -- that the military is there to carry out the civilian authority's orders, not to publicly pressure the president to follow the Pentagon line.

Wait a moment; I am not saying that if the generals have professional reasons for holding that a given policy or order about to be issued is best not followed, they should keep mum. In such cases, they should surely inform the president of their views, but through meeting with him and his staff, not via the press.

Admiral Mullen's speaking out of turn is especially offensive because instead of taking his misgivings first to the president, he went first to the press and the public, calling on the people to oppose a newly elected president even before he took office.

If the president issues an order that truly violates an officer's conscience, he should resign. Then he will be free to protest it all he wants, but not while in uniform. One may say that serving in the military does not negate one's citizen rights, including freedom of speech. This is true in all matters but those concerning the military. Here, the officers' duty is to carry out orders, not to seek to sabotage them.

Obama would hardly be the first president to be undermined by the generals. President Truman had to fire General MacArthur when he repeatedly publicly disagreed with the president's Korean war policies. Clinton was weakened from day-two of his first term when military leaders let it be known, to one and all, how unwise, and, in effect, dangerous they found his suggested policy on allowing gays to serve in the military. Clinton's timing was surely off, and the policy that was actually implemented is a sort of mind boggling compromise, but that is for the electorate to judge. Nor is there any shortage of voices, from retired generals to Rush Limbaugh to Fox News, expressing contrary views. Thus, there is no danger if the military will keep its place, the issues at hand will not be properly aired.

The overwhelming majority of Americans now think that most anything that President Bush has done, whether overseas or at home, is wrong-headed, and they have plenty of reasons to judge him so harshly. However, regarding the matter at hand, he got it right, and set a good example: in early 2008, after public statements highly critical of the President's policies on Iran and Iraq, Admiral William "Fox" Fallon, the top U.S. military commander in the Middle East, was resigned this post, ending his military career early.

The fact that President Obama does not have a military pedigree only enhances the point: he needs to establish early and firmly who is in charge, and who is to follow orders.

Amitai Etzioni is Professor of International Relations at The George Washington University and author of Security First (Yale, 2007) www.securityfirstbook.com

Cap executive pay

A powerful social science theory, much advanced by Robert Frank of Cornell, provides a strong rationale for setting a ceiling on the incomes of the executives of all corporations that receive public loans, capital injections, or some other favor from tax payers. (Surprisingly many, by the way, if you include specially tailored tax loopholes, credit below the market rates, export assistance, and so on). Before I can lay out what the theory of relative deprivation suggests the next Congress and White House should do in this department, a few words on how we got executives who are paid scores of millions in the first place.

You may well say that the astronomical pay checks -- supplemented by bonuses, stock options, and all kinds of other goodies from executive jets to suites in five star hotels -- simply reflect unfettered greed and the fact that, at least until recently, most corporate boards approved whatever pay schedules their executives put in front of them. (These boards included many of the executives’ friends and retirees keen to collect hefty fees for attending an occasional meeting and voting yes.)

All this is true, but do not underestimate the role of Michael Jensen and his colleagues at the Harvard Business School. Professor Jensen was all the rage when I was teaching at what is called “The B School,” on the Boston side of Harvard. He was known for his die-hard support of the free market, and his arguments that executives were underpaid.  He held that given that executives generate billions in wealth for the shareholders of their corporations, to reward executives for their efforts, their income should rise as the market value of the company rises. Even if they just got a few percentages of the new wealth, Jensen argued, their compensation should have been much higher than it was at the time. No wonder he was the darling of the CEOs who visited the Harvard Business School with great frequency. They paid no mind, and still don’t, to Jensen’s argument that they should  also pay “big penalties for poor performance.”

Also, missing in Jensen’s and his associates’ proposal is any explanation of what, say, an additional million bucks would buy from an executive who is already making twenty. Because I was a member of a delegation that included CEOs, I got to spend several days with the CEOs of Protector and Gamble and of Boeing, and I met some others. I found them extremely hard working people. They worked long days, often taking work home, and traveled constantly from one plant to another, from one meeting to another, with little rest in-between. I cannot imagine that anything could make them work even harder –or, for that matter, that their business would benefit if they took even fewer times out. Nor can I figure out what one would buy—with, say, that last million dollars. An eighth house? Another sports car you have no time to drive?

The answer takes us to Frank and the theory of relative deprivation. Most CEOs use their compensation figures mainly as a measurement of prestige, a statement of their standing compared to other CEOs. They are keen to make more than the next guy or doll. (Indeed, this is the reason European executives, who on average make much less than Americans ones, are just as content as American ones, because their reference group are other European executives.)

A cap on executive compensation would not only save millions for the financially strapped corporations-- and be fair to the tax payers who help these corporations stay afloat-- but would also provide the executives with a new reference point. Anyone who makes the max allowed will have made it. No more need to try to outdo the other, money-wise. Such a ceiling would leave the CEOs free to do what is best for their corporations, the economy, and families-- rather than focus on ways to jack up the price of their stock each quarter.

Micro-blogging: Bother, can you spare a dime?
The executives of Goldman-Sachs just announced that they will forgo their bonuses this year and will do with a “mere” $600,000 salary. Given their performances this year, one wonders why they were entitled to bonuses in the first place. Anyhow, if you are worried about how they will able to do on this meager income, perhaps you could send them a Christmas food basket...