June 17, 2005
What's the Matter With Ohio?
By PAUL KRUGMAN
The Toledo Blade's reports on Coingate - the unfolding tale of how Ohio's Bureau of Workers' Compensation misused funds - deserve much more national attention than they have received so far. For one thing, it's an entertaining story that seems to get weirder by the week. More important, it's an object lesson in what happens when you have one-party rule untrammeled by any quaint notions of independent oversight.
In April, The Blade reported that the bureau, which provides financial support for workers injured on the job, had invested $50 million in Capital Coin, a rare-coin trading operation run by Tom Noe, an influential Republican fund-raiser.
At first, state officials angrily insisted that this unusual use of state funds was a good investment that had nothing to do with Mr. Noe's political connections. An accounting investigation revealed, however, that Mr. Noe's claims to be running a profitable business were fictitious: he had lost millions, and 121 valuable coins were missing.
On June 3, police raided the Colorado home of Michael Storeim, Mr. Noe's business associate, and seized hundreds of rare coins. After changing the locks, they left 3,500 bottles of wine, valued at several hundred thousand dollars, in the home's basement.
On Monday, Mr. Storeim told police that someone had broken into his house over the weekend and stolen much of the wine, along with artwork, guns, jewelry and cars. As I said, this story keeps getting weirder. Meanwhile, The Blade uncovered an even bigger story: the Bureau of Workers' Compensation invested $225 million in a hedge fund managed by MDL Capital, whose chairman had strong political connections. When this investment started to go sour, the bureau's chief financial officer told another top agency official that he had been told to "give MDL a break." By October 2004, state officials knew that MDL had lost almost the entire investment, but they kept the loss hidden until this month.
How could such things happen? The answer, it has become clear, lies in a web of financial connections between state officials and the businessmen who got to play with state funds. We're not just talking about campaign contributions, although Mr. Noe's contributions ranged so widely that five of the state's seven Supreme Court justices had to recuse themselves from cases associated with the scandal. (He's also under suspicion of using intermediaries to contribute large sums, illegally, to the Bush campaign.) We're talking about personal payoffs: bargain vacations for the governor's chief of staff at Mr. Noe's Florida home, the fact that MDL Capital employs the daughter of one of the members of the workers' compensation oversight board, and more.
Now, politicians and businessmen are always in a position to do each other lucrative favors. Government is relatively clean when politicians are sufficiently afraid of scandal to resist temptation. But when a political machine controls all branches of government, and those officials charged with oversight are also reliably partisan, politicians feel safe from investigation. Their inhibitions dissolve, and they take full advantage of their position, until the scandals become too big to hide.
In other words, Ohio's state government today is a lot like Boss Tweed's New York. Unfortunately, a lot of other state governments look similar - and so does Washington. Since their 1994 takeover of Congress, and even more so since the 2000 election, Republican leaders have sought to make their political dominance permanent. They redistricted Texas to lock in their control of the House. Through the "K Street Project" they have put lobbying firms under partisan control, starving the Democrats of campaign funds. And they are, of course, trying to pack the courts with partisan loyalists.
In effect, they're trying to turn America into a giant version of the elder Richard Daley's Chicago. These efforts have already created an environment in which politicians from the right party and businessmen with the right connections believe, with good reason, that they have immunity. And politicians who feel that they can exploit their position tend to do just that. It's a likely bet that the scandals we already know about, from Coingate to Tom DeLay's dealings with the lobbyist Jack Abramoff, are just the tip of the iceberg.
The message from Ohio is that long-term dominance by a political machine leads to corruption, regardless of the policies that machine follows or the ideology it claims to represent.