In President Bush's 2006 State of the Union address, he proposed an American Competitiveness Initiative "to encourage innovation throughout our economy." Today he announced:
As part of this initiative, I asked Congress to expand America's investment in basic research, so we can support our nation's most creative minds as they explore new frontiers in nano-technology or supercomputing or alternative energy sources. I asked Congress to strengthen math and science education, so our children have the skills they need to compete for the jobs of the future. I asked Congress to make permanent the research and development tax credit, so we can encourage bolder private-sector initiatives in technology.
Today I'm going to sign into law a bill that supports many of the key elements of the American Competitiveness Initiative. This legislation supports our efforts to double funding for basic research in physical sciences. This legislation authorizes most of the education programs I called for in the initiative I laid out at the State of the Union. These programs include Math Now proposals to improve instruction in mathematics, and the advanced placement program my administration proposed, to increase the number of teachers and students in AP and international baccalaureate classes.
All well and good, but what about the barriers to competitiveness the government has created during Bush's tenure in office? It was Bush who not only signed the “Public Company Accounting Reform and Investor Protection Act” of 2002popularly known as the Sarbanes-Oxley Actbut even praised it for making “the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt.” Odd praise, indeed, coming from a conservative President. Such praise was especially odd coming from a former state governor with a track record of stated respect for basic federalism principles. In fact, as the Paulson Committee and the Schumer-Bloomberg report have documented, "New York financial markets, stifled by stringent regulations, and high litigation risks, are in danger of losing businesses and high-skilled workers to overseas competitors, relegating New York to regional market status and adversely impacting the U.S. economy."
I addressed these issues in a mongraph, Sarbanes-Oxley: Legislating in Haste, Repenting in Leisure, which you can download free from SSRN.com. Here's the paper's abstract:
I focus on three areas in which the Public Company Accounting Reform and Investor Protection Act, popularly known as the Sarbanes-Oxley Act (SOX), has proven especially problematic. First, the legal ethics rules added to the Act at the last minute have proven incapable of dealing with the incentives that condition lawyers to turn a blind eye to client misconduct. Second, the structure Congress chose for the Public Company Accounting Oversight Board (PCAOB), the accounting oversight board created by SOX, turns out to have serious constitutional defects. Finally, and most importantly, corporate compliance costs have gone up far more than anyone anticipated and are staying up far longer than even Cassandra might have predicted. Worse yet, these costs disproportionately impact smaller public corporations, which are an important engine of economic growth. Taken together, these three areas of concern highlight why Congress should think twice before trying instant legislation in the future.
If this sort of stuff is of interest, you may also want to check out my paper The Creeping Federalization of Corporate Law. Here's that paper's abstract:
The collapse of Enron and WorldCom, along with only slightly less high profile scandals at numerous other U.S. corporations, has reinvigorated the debate over state regulation of corporate governance. Post-Enron, politicians and pundits called for federal regulation not just of the securities markets but also of internal corporate governance. As Congress and market regulators began implementing some of those ideas, there has been a creeping - but steady - federalization of corporate governance law. The NYSE'S new listing standards regulating director independence is one example of that phenomenon. Other examples appeared to little public debate in the sweeping Sarbanes-Oxley legislation. Taken individually, each of Sarbanes-Oxley's provisions constitutes a significant preemption of state corporate law. Taken together, they constitute the most dramatic expansion of federal regulatory power over corporate governance since the New Deal.
No one seriously doubts that Congress has the power under the Commerce Clause to create a federal law of corporations if it chooses. The question of who gets to regulate public corporations thus is not one of constitutional law but rather of prudence and federalism. In this essay, I advance both economic and non-economic arguments against federal preemption of state corporation law. Competitive federalism promotes liberty as well as shareholder wealth. When firms may freely select among multiple competing regulators, oppressive regulation becomes impractical. If one regulator overreaches, firms will exit its jurisdiction and move to one that is more laissez-faire. In contrast, when there is but a single regulator, exit is no longer an option and an essential check on excessive regulation is lost.
And, of course, don't forget to consider my book The Complete Guide to Sarbanes-Oxley.
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