Comeback kid

Protecting Capitalism Case by Case, by Eliot Spitzer, Rosetta Books, RRP£11.99 / $17.95, 170 pages

When Eliot Spitzer last ran for public office in New York, he was a state attorney-general riding a wave of high-profile legal victories against some of Wall Street’s most powerful companies. Five years after a prostitution scandal that forced both his resignation as governor in March 2008, and a temporary withdrawal from politics, Spitzer is once again seeking election – this time as New York City comptroller.

Spitzer’s new book Protecting Capitalism Case by Case marks the beginning of a bid for rehabilitation and is a manifesto of sorts. In it, Spitzer recounts his time as a prosecutor and defends assertive government as a counterpoint to private interests that, left unchecked, would cause markets to malfunction and sap capitalism of its dynamic vigour: “Competition is the elixir of capitalism but the enemy of self-proclaimed capitalists.”

The book lists some of the impressive enemies he has made. In 1992, while an assistant district attorney in Manhattan, he tackled a mob-backed trucking cartel. And as attorney-general between 1999 and 2006, he pursued more unusual suspects: power companies whose smokestacks cast a pall across New York; alleged price manipulators in the insurance and mutual fund industries; investment banks which, he said, peddled advice they knew to be wrong.

Taking office shortly before the election of President George W Bush, Spitzer was attorney-general at a time when federal regulators seemed to be relaxing their oversight of private business. He resolved to step into the void. Lacking the enforcement powers of a federal agency, he reinvented his prosecutorial remit by pressing a distinctive style of legal action that aimed not only to extract restitution from his targets but also to remove structural incentives to cheat. Spitzer conceived it as a form of “social engineering” that would change “the circumstances that led to the improper behaviour in the first place”.

In the mafia case, a conviction would have put the defendants in jail but left their associates free to continue the racket. Instead, Spitzer settled, forcing the conspirators to sell their trucking interests and reopening the market to competition. By adapting this strategy and applying it to Wall Street, he became a household name. Investment banks, insurance brokers and mutual funds all paid fines and agreed to change the way they did business.

Spitzer argues, cogently if laboriously, that “enforcement of the regulations that the ‘free market’ voices loved to mock was not antithetical to the way the market was supposed to function. In fact, it was critical to making it work properly.”

It is his distinctive brand of regulation, however, that stands most in need of defence, and his detractors will find little here to change their minds. In one episode, Spitzer refused to negotiate with the chief executive of a company he was suing, forcing the latter to resign. “It was not only the correct thing to do; it should be standard practice,” Spitzer writes. But he fails to quell misgivings that even if the executive had to go, a public prosecutor had no business demanding the sacking of a man against whom he had formally alleged nothing. Nor did Spitzer’s prosecutorial frenzy accomplish all that he has claimed. A decade on, there has been little change to the buccaneering Wall Street culture that was the target of his ire.

In a rare reference to his personal life, Spitzer recalls Icarus, lamenting that “so too did my life crash back from the heights to which I had ascended”. Thus, a man once tipped for the presidency is now running to be New York City comptroller, with the Democratic primary for the post taking place next month.

This obscure office has caught Spitzer’s eye because it manages $140bn of pension fund assets, deals with investment banks and asset managers, controls a huge bloc of shareholder votes – and, he believes, is ripe for reinvention. By divesting their stakes in firearms manufacturers or blocking political donations, he suggests that pension managers can accomplish reform where politicians have failed. “Ownership trumps either prosecution or regulation as a mechanism to change behaviour,” he argues.

It is an enchanting vision but a fanciful one. If a well-run company is contributing to some social ill, a pension fund can do little more than sell its stake – transferring ownership elsewhere while the harm continues. Indeed, there is an irresolvable tension at the heart of Spitzer’s new programme. He made his name as an outsider, defending the public interest against corporate malefactors. As comptroller, however, he would be the custodian of vast wealth tied up in the very companies he plans to reform. If those companies are profiting from bad behaviour, his responsibility to pensioners will pit him against the broader public interest he claims to serve.

Mark Vandevelde is the FT’s 2013 Peter Martin fellow

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