A squeaky revolving door

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In recent weeks we've seen two egregious examples of how oligopolies use their clout to get government favors that small companies could never get. This kind of influence is pervasive in a country where political contributions buy favors and where access means you get to "help" lawmakers write legislation or draw up contracts. In these cases what's remarkable is the billions and billions of dollars involved.

It's rare that the one aspect of that influence, revolving-door hiring practices, is as nakedly revealed as it was last week. The revolving door involves the hiring of key government employees who have been in charge of negotiations with a key industry group, so that they get an exorbitant non-government salary as a reward for their compliance. Of course, this is always denied by the companies who "just want to hire the best man or woman for the job."

Case one is the bidding war to hire Thomas A. Scully, the head administrator of Medicare. This comes a week after the passage of ambitious new Medicare legislation, in which Scully had a major role. According to an article in the New York Times, ("Health Industry Bidding to Hire Medicare Chief,' 12/3/2003)

Mr. Scully has made no secret of the fact that he has been looking for jobs
outside the government for more than six months -- even as he spent hundreds
of hours in closed sessions with House and Senate negotiators working out
countless details of the legislation, which makes the biggest changes in
Medicare since creation of the program in 1965.

Scully is reported to makes $134,000 a year in his government post; he could earn five times that in the private sector. Five companies are bidding for his services, three law firms with extensive practices related to the health care industry and two investment firms with large health industry holdings. All of these firms are closely allied with companies that stand to make a big pile of money through the new Medicare rules.

According to the Times article:

A summary of ethics rules issued by the Department of Health and Human
Services says employees who have begun seeking jobs in the private sector
must immediately recuse themselves from "any official matter" that involves
the prospective employer. This covers legislative initiatives and proposed
rules, the document says
.

But he received a waiver from another administration bureaucrat, allowing him to go on with negotiations. Despite the protests, Scully may wel get away with it.

But even more scandalous was the Boeing revelations. Here the scandal is in its crisis, with the CEO and CFO out the door and a big shakeup underway along with Congressional inquiries. It all happened when CFO Mike Sears, hired a Pentagon procurement officer (Darleen Druyun) who was instrumentally involved in a dubious contract for leasing air-tankers. Note that unlike the health industry, who look set to reward Scully for his helpfulness through third parties, Boeing made the blunder of hiring direct.

The attempt to lease 100 air tanker refuelers had already been attacked by congressional Republicans and Democrats long before. It turns out that leasing the planes would cost the government more than buying them. Senator John McCain, a Republican form Arizona, protested loudly so the Pentagon re-negotiated a compromise where the government would lease only 20 planes, and buy the rest, resulting in billions of dollars of savings off the original contract.

According to an article from military analysis site Jane's News Online (12/5/2003)

The National Legal and Policy Center (NLPC), an ethics watchdog group,,, had filed a complaint with the Defense Department Inspector General on 6 October alleging improper ties between Boeing and Druyun who was then in US Air Force acquisitions. The complaint disclosed that Druyun's daughter was hired by Boeing under suspicious circumstances and that a Boeing executive offered to buy the Druyun home while she was still overseeing billions of dollars in Boeing contracts. Druyun was subsequently hired as a vice president at Boeing. The complaint explicitly raised the question of when Boeing offered Druyun the job.

The revelations about the quid pro quo for the contract ahs caused new investigations and a threat to cancel the deal. But here's where the virtues of oligopoly come in, a trend that has been growing in the defense industry. Only one other country is capable of supplying the contract, Anglo-French Airbus. Boeing has steadily acquired or driven off all American competitors in this area. So, in spite of Boeing's continuing recent history of illegal practices, and unfair dealing, the Bush administration has nowhere else to go. It's unlikely to hire airbus when national security is on the line, thousands of US jobs are in danger, and the company is half-French. The result is likely to be a slap on the wrist, a few execs out of a job, and then business as usual.

[Oligopoly Watch]

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This page contains a single entry by David R. Remer published on December 7, 2003 10:01 PM.

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