After The Fall: Saving Capitalism From Wall Street—and Washington

by Nicole Gelinas

After Hurricane Katrina, Louisiana desperately needed America’s compassion and financial support. But many national officials, policymakers, and talking heads said that the state was so corrupt that its public officials and politically connected contractors would likely find a way to pilfer any money that was given to it. Reputation is no laughing matter, especially in a crisis. New York State’s reputation has been steadily eroding for years, but the news about Governor Eliot Spitzer’s patronage of a prostitution ring—coupled with other recent, less titillating news—pushes New York dangerously toward Louisiana territory. The next generation of New York leaders should understand what a serious blow the state has taken and what must be done to fix it.

For guidance in how to recover from an abysmal low, they could look to Louisiana. Katrina’s aftermath was apparently a wake-up call for the state’s residents, as they learned the hard way that the state’s reputation had real-world consequences. Most of the money that the state eventually got came wrapped in layer after layer of corruption-resistant red tape, likely contributing to the slow pace of the recovery effort and increasing total costs through inefficiency. Last fall, jarred by these realities, voters elected a candidate for governor, Bobby Jindal, who explicitly ran against his state’s corrupt history, arguing that it first had to embark on serious reforms before the nation’s entrepreneurs and investors would do business there.

Since he took the oath of office in January, Jindal has had at least some cooperation from a legislature that’s just as entrenched and self-protective as New York’s, but whose members seemed shocked by how negatively the rest of the nation viewed their little world. In an early special session, the legislature passed, and Jindal signed, a spate of solid ethics laws. Jindal is currently negotiating to dedicate much of a one-time surplus to vital infrastructure investments, including capital spending on Louisiana’s all-important hurricane protection system of levees and coastal restoration. He’s also looking to ease the state’s tax burden. While one can quibble with some of his specific proposals, the governor’s tone is just as important as the details of his policies. The personable, optimistic Jindal makes it difficult for legislators to obstruct him without looking unreasonable, while his professionalism sets a good example for other elected officials, state and local. People in Louisiana genuinely seem excited about their new governor and their state’s future.

In New York, by contrast, people who care about state government have been depressed and listless for years, as lawmakers and statewide officials have long seemed more interested in helping themselves than in helping others. Some brief highlights of the state’s travails even before the Spitzer bombshell landed on Monday:

• Senate Majority Leader Joe Bruno, the subject of a long-running FBI investigation, recently told New York magazine that until leaving the firm recently, one of his part-time duties at Wright Investors’ Service was providing the company with access to potential union investment clients—all while he held public office.
• Assembly Leader Sheldon Silver works part-time at Weitz & Luxemburg, a trial-lawyer shop, which might have something to do with why it’s so hard to pass malpractice reform in New York. Silver has also long used murky legislative earmarks to award state money to nonprofits run by close associates.
• Former state comptroller Alan Hevesi still faces questions over whether he and associates steered lucrative business with the state’s huge pension fund to certain investment firms in return for his and his family’s personal benefit.
• Multibillion-dollar taxpayer morasses, including the state’s Medicaid program, are off-limits to reform. Everyone in Albany knows that progress will hurt key constituencies with deep pockets, endangering everything from campaign donations to potential lobbying work for associates and relatives.
• Any investor looking to do business here knows that the only way to escape part of New York’s high-tax burden is to make a deal to get into one of the state’s opaque, patronage-ridden economic-development programs.

For these and other reasons, even conservatives were happy that the energetic Spitzer won office by such a landslide 16 months ago. Conservatives never expected Spitzer to be much of a fiscal steward, but many were happy to ignore some big issues if only he could start to change the culture in Albany and show that New York, too, understood that it had real problems and was starting to change.

Enter Client Number Nine. If news reports are true, Spitzer was as corrupt as the rest of them, willing to engage in activity that he knew could be prosecuted as a federal conspiracy of money laundering and human trafficking. It’s not just that Spitzer, who had prosecuted prostitution rings as attorney general, seemed to think himself above the law. Other potential implications are even more disturbing. What if, for example, Spitzer didn’t prosecute some organizations because he had relationships with them? The governor and former attorney general also made himself vulnerable to underworld blackmail. The knowledge that he was a client could have been a priceless piece of information for some shady character to use not only against Spitzer and his staff, who depend on his public office for their own career advancement, but also against his wealthy family.

The state’s prominent elected officials, including Senators Charles Schumer and Hillary Rodham Clinton, should be frank and acknowledge to the public just how serious the governor’s transgressions are. And the state’s all-but-assured next governor, David Paterson, must work with the legislature quickly to acknowledge that while Spitzer’s behavior was a shocking low point, the Empire State didn’t have far to fall. New York could start cleaning up its act by passing a law requiring legislators to disclose how much money they make from outside business interests, as Louisiana just did, so that voters can learn just how valuable, for example, Silver’s trial-lawyer employers consider his position. It should also take this year’s huge deficit as an opportunity to wrest the budget away from the special interests, lightening the taxpayers’ burden in future years.

The state better get down to business, or the next time it has to go to the nation for help, as it did after September 11, the first thing national leaders might think is that it can’t be trusted. After all, the latest New York scandal made front-page headlines on newspapers far and wide—including, to name just one example, New Orleans’s Times-Picayune.

Nicole Gelinas is a contributing editor to City Journal and a Chartered Financial Analyst.