Thursday, January 8, 2004

13. Politics keep it in the family

Upon taking office, President Bush appointed Michael Powell, son of Colin Powell, chairman of the Federal Communications Commission. Elaine Chao, wife of Senator Mitch McConnell, became secretary of labor and her labor attorney is Eugene Scalia, son of Supreme Court Justice Antonin Scalia. The Vice-President's daughter, Elizabeth Cheney, became deputy assistant secretary of state and her husband became chief counsel for the Office of Management and Budget. Finally, although not a complete listing, Bush appointed twenty-eight year old Storm Thurmond Jr. to U.S. attorney for South Carolina. So much for all men created equal- so much for equal opportunity employment. Of course, George W. Bush himself is a third generation Republican, with his grandfather, father and brother all serving in politics. By excising political appointments to such a degree of nepotism, staff meetings serve to double as family reunions.

Nepotism is nothing new in the history of man. Although it began long before, it was defined in the 14th century to depict the corrupt practice of appointing papal relations to office. Tribal leaders anointed their sons, monarchies ruled for centuries and modern governments operate on the premise that "to the victors go the spoils"- a term first coined when Andrew Jackson appointed a number of supporters to office, many of which were common folk and unqualified. To denounce its existence is an exercise in futility.

Its premise is understandable- who doesn't want the best for his or her children? Who doesn't want their children to take over upon resigning a position of power? And it is true; sometimes the children are the most qualified- especially in family businesses in which they grow up.

But this America, are we not all are born equal and to be judged on our accomplishments and hard work- not our last name? It is not suppose to be a meritocracy? Of course, any student of history knows better. America has consistently discriminated against women, minorities and the poor. Hard work has never had anything to do with it.

Nepotism today is referred to the practice of not just hiring a relative, but a hideously incompetent one. Outside of governments, it is prevalent in business, Hollywood and sports. It is easy to understand the resentment bestowed upon those whose path to success is paved with the bricks of entitlement, bypassing the roadblocks that hinder and frustrate others. Furthermore, and regrettably, arrogance usually accompanies entitlement- accounting for the lack of empathy for the unprivileged. Not only do the privileged grow up in affluence and attend the best schools, but they also get the contacts, interviews and references. Often, the silver platter is an office, with a view, and a vice-president title immediately out of college- with little regard for those who truly have to work their way up the corporate ladder.

The problem is that nepotism breaks at the weakest link. The consistent hiring of the anything other than the "most qualified applicant" opens the door to failure. Monarchies were lost to incompetence; businesses to the lack of leadership- for appointments were based on relationships rather than accomplishments. The press in describing the collapse of Indonesia, where nepotism is rampant, uses words like "collusion," "corruption," and "blatant" to describe the effects of nepotism on its country.

An author on the subject describes a "new nepotism." Whereas "old nepotism" was the insistence of the parent that sons and daughters follow in their footsteps; "new nepotism" is the seeking behavior of children who have discovered that making on their own is too difficult. Either way the practice is here to stay, and those, like myself, who despises the system had better come to understand that there is little that can be done about it. Currently, 95% of all businesses are family owned, including 40% of all Fortune 500 companies.

George W. Bush, in his appointments, acted in the same manner as nearly every other president. However his appointments have been a bit excessive, to the point that one naturalized citizen remarked, "I emigrated for this?" What else could be expected from someone who rode into office on his father's coat tails? The problem for most is his arrogance. A quote once directed at his father, by then-Texas agriculture commissioner Jim Hightower, more aptly describes his attitude, "Here is a man who was born on third base and thinks he hit a triple."

Wednesday, January 7, 2004

12. Our credit is used unfairly

It used to be that an individual's credit rating was established to define the ability of that individual to borrow money and his or her reliability in repaying loans. Today, one's credit score may also be used in employment background checks (with consent) and in determining one's insurance rates. Employment background checks make sense, especially if that individual will be responsible for large amounts of money- although the argument may be that the reason an individual is looking for a job is to earn money to improve his or her financial standing.

The use of credit ratings as an insurance rate factor is, however, a bit more controversial. It is estimated that currently 90% of all insurance companies factor in credit rating when determining an individual's insurance premium. I will suppose that there is indeed credibility in the claim of insurance companies that those who are financially more responsible file less claims than those who are less financially stable. The issue, however, is much deeper than this statistical claim; in fact the entire process of rate determination ought to be questioned.

Insurance companies base their premiums on driving record, residence (rural or urban/ driving distance to work), age (under 25), gender, marital status and type of vehicle. That is, they have determined this set of factors as key in determining the risk assumed by the insurance company in insuring individuals. However, only driving record and driving distance to work is a truly objective rate factor. The balance is, depending on the definition, discriminatory in nature. If discrimination is defined as "inflicting hardship on a individual based on attributes for which he or she has no control over," the evidence is clear. In addition, insurance companies, through both good fortune and skill, tap dance their way through the politics of societal defined discrimination. For example, males pay more for insurance than females, and those under 25 years of age pay more than those older. Societal backlash might be encountered if insurance companies charged more for females and the elderly. However, when statistics are not on their side, insurance companies hide behind terms such as "urban residence" rather than the poor, or worse, poor minorities. Incidentally, it is the poor who might experience the effects of using one's credit rating as a premium-setting factor.

What should be of fear to all individuals is the insurance's company use of seemingly private (or at least unrelated) information against an individual in determining insurance rates. And what should fear the poor is the use of their social-economic status to further subsidize the rates of the affluent.

There are many other, perhaps even more relevant, factors that can and might yet be used by insurance companies to aid their rate setting. Consider some other real factors of bad driving, factors such as the number of kids in the car. What about smoking, drinking, eating, and talking on cell phones while driving? What is to stop insurance companies from requesting cell phone statements to aid in rate determination? For should not those who engage in excessive cell phone conversations while driving, not have their rates increased accordingly?

What is the limit to the endless amount of statistical factors that may be fairly or unfairly used by insurance companies to set insurance premiums? How about driving licensure test results, high school grade point average? Aren't these at least as indicative and considerably less discriminatory than credit rating?

Insurance companies argue the responsibility of the financially stable as represented by credit scores. Isn't responsibility the product of values? For example, which individual might be excising greater societal irresponsibility, one who drives a Hummer with gas mileage so low that it requires its own oil well, or an individual who pays his credit card a couple days late following a layoff?

Through statistical methods and groupings, also known as stereotyping, insurance companies are permitted to discriminate against individuals whose only fault is to be part of a statistically inferior group. One's credit rating is influenced by many factors, some of which are beyond one's control (illness, job loss, rich parents) and most of which have no influence on one's ability to operate an automobile. Moreover, the use of credit rating scores in insurance premiums disproportionately affects the poor- those who may already being paying more for premiums if they also reside in urban areas.

Insurance is meant to be a pool of risk sharing, with individuals paying proportionally. This proportional amount should be based on past performance and the experience of the INDIVIDUAL, not the group of which one belongs. Under the current system, insurance companies are penalizing the responsible members of a class because of the performance of the class as a whole. Where else in society is this permitted?

Finally, it is ironic to note that, through risk assessment, insurance companies commit considerable time and resources to determine insurance premiums; however when their statistical methods fail- and claims are filed- rates are promptly raised.