Month: December 2003

A squeaky revolving door

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.