With all of the stark contradictions in his character, Leland Stanford—a man best known as a railroad magnate, California governor, and putative philanthropist—embodies American typecasts that have bedeviled us for centuries. Today’s infamously disruptive, get-rich-quick, world-altering, ill-mannered, entrepreneurial culture traces directly back to this enigmatic, mythical man.

He had a quintessential American provenance. His earliest American ancestor arrived in New England a few years after the Mayflower moored at Plymouth Rock. A later Stanford fought in the Revolutionary War. (That ancestor’s widow had to fight the government to get his pension. How American is that?) Stanford’s people moved west to what is now Albany, New York and ran a bar called the Bull’s Head tavern, where he was born in 1824.

Leland’s real first name was Amasa, after a troublesome Old Testament figure who joined a failed rebellion against his own uncle, the duplicitous warrior king, David. Leland dropped Amasa in favor of his benign middle name—which means meadow, although Stanford was hardly so open and agreeable.

He spent most of his life altering himself, moving about, shifting. And he failed at just about everything. As a student, he was a repeated dropout who never graduated from what today would be high school. He claimed to have passed the New York State bar, but the record indicates he did not. He was, not surprisingly, a classic American anti-intellectual, who disparaged people with better educations. Later in life he liked to boast that he hired Harvard and Yale graduates to run his San Francisco street cars, his point being they had wasted their time at university.

By the time he was 28, Stanford was dead broke. Letters, manuscripts, and other documents reveal he fled in 1852 to California, where his brothers had already established a successful retail business. With understandable skepticism, the brothers sent Stanford up to the mountainous Gold Country to open a branch store, to see how he would do—and for the first time ever, he did fine. He got himself appointed local justice of the peace, opened a bar he called the Empire Saloon to honor his New York tavern past, and used the joint to dispense justice and liquor.

When the brothers moved out of their Sacramento headquarters and on to other enterprises, Stanford came back down the hill to take over—and met the partners who would help him accrue his vast wealth. A hardware store next door was run by two successful entrepreneurs named Collis Huntington and Mark Hopkins. Another prosperous merchant of carpets and shoes by the name of Charles Crocker worked just around the corner. These men recruited young Stanford into one of the biggest, most audacious gambits in American history: financing and building the transcontinental railroad.

The new-found associates—soon to be forever known as the Big Four—made Stanford titular head of their start-up, the Central Pacific Rail Road, and secured a contract to build the western end of the rail line, to be financed largely by American taxpayers. The money was supposed to be paid back in 30 years.

Almost immediately, Stanford and his partners began a ceaseless—and successful—campaign to get still more money out of American taxpayers. They set up dummy companies to launder the proceeds into their own accounts, effectively hiding their true expenses and profits. Consequently, they began amassing great power. The Big Four, riding the coattails of Abraham Lincoln’s victorious 1860 election, engineered the election of Stanford, a Republican, as governor of California in 1861.

Becoming governor awakened something in Stanford, and his all-American paradoxes and opportunities began working in singular rhythm. He conflated government service with personal profit, and began bullying the state legislature, local counties, and cities to issue bonds to further fund his railroad and, by extension, his fortune. The railroad construction itself was borne largely on the backs of the pariahs of the time: Chinese immigrants, whom Stanford denigrated, along with Native Americans and others. The Big Four paid their Asian laborers less than their white workers and demanded much more of them as the project crossed the formidable Sierra Nevada and the scorching desert.

This was the mid-19th century American success story—four men had traveled west and struck figurative gold. But not many people knew what was really happening behind the mythic narrative, and of course, no one knew what consequences it would bear.

Leland Stanford would soon become embroiled in scandals, including one of the greatest in American history.

The eastern end of the transcontinental railroad—a scandalous enterprise in itself—met the Stanford group’s western end at Promontory Summit, Utah, in 1869. Stanford and partners then raced to acquire every railroad in California and much of the West. Their monopoly exploited freight and passenger customers, charging outrageous prices and laundering the profits through veneer corporations. Furthermore, Stanford declared that his company should not have to pay back the loans to American taxpayers. A series of subsequent state attempts to investigate the railroad, which would soon change its name to the Southern Pacific, failed in large measure because Stanford bought off the so-called investigators.

Leland Stanford drove in the golden spike, connecting the Central Pacific Railroad with the Union Pacific Railroad and marking the completion of the transcontinental railroad line, on May 10, 1869, at Promotory Summit, Utah. Photograph by Andrew J. Russell. Courtesy of Wikimedia Commons.

A fed-up federal government finally stepped in. In 1887, Congress created the Pacific Railroad Commission, “authorizing an investigation of the books, accounts, and methods of railroads which have received aid from the United States.” That launched a sweeping and granular investigation into the businesses at both ends of the transcontinental railroad, starting with the Stanford group.

Almost a year, hundreds of witnesses, and some 6,000 pages of testimony and conclusions later, the commission found Stanford and his people had lied to and defrauded the American people.

“I have never seen vouchers in such a state before in my life,” an independent expert accountant with 30 years’ experience working for railroad companies testified. “They are all in disorder, and nine-tenths of them are merely scraps of paper without receipts.”

The investigators found that millions of dollars had been “used for the purpose of influencing legislation and preventing the passage of measures deemed to be hostile to the interests of the company, and for the purpose of influencing elections.” In other words, the Stanford group had used millions of government money dollars to fight the government.

But that wasn’t the best—one should probably say the worst—of it. Essential accounting books that would have shown exactly where taxpayer money went had simply disappeared. Vanished. Vamoosed. “These books were not produced, and in the opinion of the Commission, were purposefully destroyed by direction of Stanford, Huntington, Hopkins, and Crocker. The evidence on this point appears to be conclusive.”

“The result,” the commission determined, “is that those who have controlled and directed the construction and development of these companies have become possessed of their surplus assets through issues of bonds, stocks, and payments of dividends, voted by themselves while the great creditor, the United States, finds itself substantially without adequate security from repayment of its loans.”

The Big Four made an estimated $62.6 million “surplus” on transcontinental railroad construction and a similar $55.5 million from the other many railroads they controlled, the commission concluded. For some context of what that money was worth in 1887, the California state budget that year was about $6 million (It’s over $200 billion today). The United States government couldn’t sue the railroad at that time because the debt was not yet officially due, and stockholders wouldn’t sue because they would likely lose their investments.

When Stanford got fed up answering the commission’s increasingly tough questions, he simply shut down, saying he had no knowledge, didn’t recall, or would not answer on advice of counsel. The commission brought him to court. In 1887, two members of a panel of three judges—personal friends of Stanford’s whom he had appointed to the bench—ruled against Congress and for Stanford.

He had won, but his fortunes would soon turn. The next year Stanford and his underestimated wife Jennie suffered the greatest loss imaginable. Their beloved only child, Leland Jr., died during a Grand Tour of Europe at age 15. The parents set out to memorialize him with the establishment of a university on their vast country estate in Palo Alto.

A few years later, Leland Sr. was betrayed by his business partner Huntington, when the wily old hardware store salesman engineered a corporate coup, had Stanford deposed as head of the railroad, and assumed the presidency himself. Huntington remained in the position for the rest of his life.

This American story of failure, reward, tragedy and duplicity has a tragic coda: murder.
Eight years after Leland Stanford died in his Palo Alto country mansion, on the brink of bankruptcy, his unassailable widow Jennie, who had saved Stanford University from shutting down by successfully fighting all the way to the Supreme Court for the return of a government loan, was murdered in a luxurious Honolulu hotel room. A coroner’s investigation found someone had purposefully poisoned her with pharmaceutical-grade strychnine.

The president of Stanford University, David Starr Jordan, made sure the investigation went nowhere—he could not afford to let another scandal rock the young, fragile institution. The killer was never discovered. And the university would go on to be a force for altering lives around the planet, as birthplace, incubator, and sustainer of Silicon Valley.

Today we often hear American stories of corporate chicanery, political fraud, coverups and crime—and they coexist with tales of our fathomless capacity for ambition, invention, and philanthropy.

Leland Stanford led the rare life big enough to contain them all.

The post Was Leland Stanford a ‘Magnanimous’ Philanthropist or a ‘Thief, Liar, and Bigot?’ appeared first on Zócalo Public Square.

For centuries, this society has been especially receptive to economic innovation and the strategies of wealth-seeking that so often accompany it. Openness to new technologies and new ways of doing business exacerbates information gaps between sellers and buyers. Those gaps, along with the enthusiasm that comes with new products and investment vehicles, create opportunities for fraudulent promoters and the bait-and-switch brigade.

As the journalist Edward Smith noted in the 1920s: “Every social change, every new invention brings to life a fresh manner of separating the sucker and his money. It may be and usually is only a disguised evolution of an older swindle, but it is new to the victim and therefore effective.”

That said, the last few decades—the period since 1980—have seen a dramatic increase in the scale and breadth of American business fraud. Of course, Americans in earlier eras encountered fraudulent investment scandals, like the market manipulations at the Re brokerage firm (which came to light in the early 1960s), or the misrepresentations made by the National Student Marketing Corporation (in the early 1970s). There also were egregious consumer frauds, such as the abusive mode of selling home heating systems by the Holland Furnace Company. But the worst of these episodes took place within medium-sized corporations, or on the fringes of the economy.

Today, fraud has become big business. In the last four decades, fraud cases running into the billions of dollars have become commonplace. So have allegations of marketing duplicity or false accounting against many of the largest corporations operating in the United States. Massive government contracting frauds roiled the defense industry in the 1980s and the healthcare industry the following decade. Consumer frauds have steadily targeted older Americans, first through telemarketing and now via the web.

During the late 1990s and early 2000s, accounting scandals rocked a series of major corporations, including Enron, WorldCom, and Sunbeam. Over the past decade, pyramid schemes such as those run by Bernard Madoff and Allen Stanford have bilked tens of thousands of investors. And in the run-up to the global financial crisis of 2008, the provision of marketing information throughout the entire chain of the American mortgage system became shot through with duplicity, with falsehoods embraced by appraisers, mortgage brokers, third-party loan assessors, underwriters, and distributors of derivatives.

This era of gargantuan fraud scandals is still with us. Even after the reality check of the most recent financial crisis, major fraud scandals keep happening: LIBOR rate-fixing; creation of myriad unauthorized accounts at a major nationwide bank, Wells Fargo; and another alleged billion-dollar pyramid scheme, Platinum Partners.

What accounts for this dramatic growth in the magnitude of corporate deception? The post-1980 preference for deregulation has played a big role. Cuts to enforcement budgets have been a common theme in explanations of fraud episodes. So has the disinclination among policy-makers to impose regulatory constraints on newly emerging markets such as financial derivatives.

A key premise among supporters of deregulation is that the reputational incentives created by markets will serve to check the rankest frauds. Corporations won’t go down the path of duplicity, this way of thinking presumes, because the long-term consequences of lost business can be so devastating. Unfortunately, the behavior of scores of corporations over the past few decades belies this comforting narrative. Companies have so decisively bought into the use of short-term incentives to structure compensation for employees and executives that it’s often hard for them to think much past the next quarter’s financial results.

After the 2008 financial crisis, American policy-makers placed a premium on containing marketplace duplicity. Most importantly, Congress created the Consumer Financial Protection Bureau (CFPB), with major duties: improving the flow of financial information to consumers, monitoring the operation of consumer credit markets, and bringing enforcement actions against businesses that engaged in unfair, deceptive, or abusive tactics. The CFPB has worked hard to simplify financial disclosures to consumers, and has clawed back almost $12 billion through a series of settlements with financial firms accused of wrongdoing. But in this same period, Congress also loosened disclosure requirements for many start-ups, a deregulatory move that has raised concerns about new opportunities for fraudulent promotion of new companies.

We now have an administration in Washington that trashes regulation of all sorts and appoints vehement opponents of regulation to run federal agencies. It’s not hard to imagine that enforcement budgets for consumer and investor protection will once again take a big hit, and that federal regulators will adopt a more forgiving posture toward dodgy marketing tactics.

Such policies are their own kind of sucker’s bet. If the Trump Administration implements them, the long history of American business fraud suggests that we can look forward to more headlines about major corporations that have cooked their books or cheated their customers. When scandals of this sort accumulate, they have consequences beyond short-term economic losses. Indeed, they undermine the social trust that underpins our country, and healthy capitalism itself.

The post Why Suckering Americans Is a Booming Business appeared first on Zócalo Public Square.

Ever since the Supreme Court’s Citizens United decision in 2010, it’s been fashionable to deplore (with full-on How dare they? indignation) the power of big business in our political process. But judging from recent events, I’m more inclined to regret that corporations don’t have a greater say in our civic life.

Seriously. Think about the recent rash of exhilarating triumphs for once-marginalized minorities: the U.S. Supreme Court legalizing gay marriage across the land; South Carolina hastening to lower the Confederate flag of sedition and racism; a Republican presidential candidate being ostracized for bashing Latino immigrants. One of the threads connecting each of these stories is the presence of corporate America flexing its muscles, taking a stand against the bullying and discrimination of minorities.

In the landmark marriage case, a Who’s Who list of blue-chip companies from Procter & Gamble to Goldman Sachs signed onto legal briefs urging the justices to strike down all bans on gay marriage. They argued that such bans conflict with their own anti-discrimination and diversity policies, and that you can’t have a country (and cohesive marketplace) where fundamental rights—like the right to marry—vary from state to state.

Even more impressively, big business mobilized in a number of states over the past two years to defeat or roll back proposed “religious freedom” laws seen as disingenuous efforts to legitimize the discrimination of gays. No single company has been more identified with the effort to stand up to such laws than Walmart, which was credited with singlehandedly defeating a proposed measure in its home state of Arkansas. The retailer also joined other prominent businesses in attacking another such law passed in Indiana, which was subsequently altered.

Business interests were also instrumental in turning the tide against the Confederacy. The New York Times story on South Carolina Governor Nikki Haley’s decision to call for the removal of the Confederate flag from the State Capitol grounds in the aftermath of the racially-motivated massacre at the Emanuel Church credited “intensifying pressure from South Carolina business leaders to remove a controversial vestige of the state’s past” as one factor leading to the governor’s reversal of her previous position.

Arizona is another state where businesses leaders fought against, and defeated, a religious freedom law that would have otherwise prevailed. In addition, establishment Republicans and corporate leaders in the Grand Canyon State have been in full damage-control mode since the state legislature passed SB 1070, a controversial anti-immigration measure which proved disastrous to the state’s brand as a tourism and investment destination. Subsequently, the business community mobilized to defeat a number of other, ever more radical, anti-immigrant proposed laws in the state, and to take on the Tea Party Republicans responsible for them.

At the national level, the U.S. Chamber of Commerce and other business groups have led the charge for sensible immigration reform—though this effort can’t yet be checked off as a victory. If only the business lobby had as much power as we often assume it does! In the meantime, it was gratifying for Latino activists aligned with business on immigration to watch Donald Trump be fired by corporate partners like Macy’s, Comcast, Univision, and Disney over his hateful comments about Mexicans. Turns out, vicious speech denigrating immigrants may be acceptable speech in certain political circles, but not in the corporate realm.

Some politicians eager to cater to local prejudices, and capitalize on them, are clearly chafing at the activism of corporations on behalf of a healthier business climate. This spring, while pushing for his own religious freedom law, Louisiana Governor Bobby Jindal practically whined in a New York Times op-ed: “As the fight for religious liberty moves to Louisiana, I have a clear message for any corporation that contemplates bullying our state: Save your breath.”

It’s an interesting line, not only because he ascribed “breath” to companies, doubling down on the much-mocked pronouncement of then-candidate Mitt Romney that companies are essentially people, too. Jindal’s choice of the verb “bullying” is deliciously hypocritical, because in this case (as in the others described above), it was business rising up to oppose the bullying of people by small-minded politicians.

And this is the key issue on which I differ from many of my friends and colleagues in journalism and academia who hold to a reflexively anti-corporate worldview. They see large, distant corporations as the source of much bullying. I tend to see the worst forms of bullying arising closer to home: at the hands of local or state governments, or dominant business interests rooted in one place.

No, there isn’t anything inherently virtuous about business leaders. As cynics are quick to note, the political fights I’ve described here are all about business wanting what’s best for business. Companies need to avoid offending existing or potential customers and they need to be seen as being inclusive and diverse employers to the best and brightest potential hires out there. I’ll still take those selfish impulses: If only more governments were similarly motivated, instead of being willing to marginalize minorities.

Most business lobbying is admittedly not focused on civic or “business climate” issues like the ones I am raising, but rather on narrower, self-interested agendas of particular companies or industries—say, to influence the drafting or application of regulations, or tax laws. Critics resent the billions spent by corporations and their trade associations in trying to influence the political process, especially since the amounts they spend dwarf the lobbying expenditures of everyone else. But lost in the depiction of a monolithic corporate America pitted against the rest of us, getting its way behind closed doors, is the fact that a significant portion of those business lobbying efforts and dollars are essentially engaged in an intramural corporate contest. It’s about one industry or company seeking to gain advantage (or a level playing field, they might say) against a competitor. Those dollars often cancel each other out. But when the business community does come together to speak with one voice, on broader issues affecting us all, it tends to play a powerful and positive role.

Big business tends to be more enlightened than smaller business interests rooted in only one place, because the broader your perspective, the bigger your market, the less tolerant you can afford to be of idiosyncratic regional prejudices. A company with customers and employees across the country or around the world won’t be comfortable choosing as its home a state that embraces symbols associated with the cause of slavery, or one that passes laws that treat gay couples as second-class citizens or one perceived to be harassing foreigners. It’s no accident that commerce across state lines has always been one of the great motors of progress in this country, and not just economic progress.

That is also why trade agreements that seek to harmonize norms across borders are as beneficial to individuals as they are to big multinationals. The prospect of joining the European Union (and attracting investment by large foreign companies) forced governments across Eastern Europe to protect the rights of long-oppressed minorities. As much as Elizabeth Warren and her protectionist allies have attacked President Obama’s proposed trade deal with Asia as a sop to big business, the agreement will help strengthen civil society and individual rights in these countries for precisely the reasons these critics attack it—by standardizing norms of behavior across jurisdictions.

Bigotry, and the disregard of people’s rights and dignity that comes with it, don’t travel well. And they’re bad for business.

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