On Being In the Security Business: Obligations, Aspirations, & Walls (1Q17 Newsletter)

April 15, 2017

To: Customers & Friends

From: Christopher Weil & Company, Inc.

The much-publicized proposal to build a wall along the U.S.-Mexico border will, I hope, provoke some serious conversations about the whole issue of security: personal, national, global. Security is a great subject, not least because it is never far from most people’s central concerns -- but more talked about than realized, more sought-after than achieved. And the impacts of border security happen to be of particular concern to those of us who live and work in San Diego. I can’t speak with confidence about the macro complexities that would accompany beefing up the existing segments, and filling in the gaps, in the partial border wall/fence that now extends from the Pacific Coast, here in San Diego, to the Gulf Coast, just east of Brownsville, Texas; but I can give you a small scale example of what’s happening on the ground here where we already have a wall.

An acquaintance of mine (single, successful, active in San Diego civic life) has just moved to Tijuana, Mexico specifically to an apartment on the beach for which he is paying $500 per month. His apartment building, he tells me, is filled with people who have need to be, and often are, in San Diego for one reason or another. In his view, Tijuana will be a San Diego bedroom community within ten years. “But what about the wall, and what about border security?” I’m not sure what the specific answers to such questions might be for San Diego and Tijuana, but I do know that large scale facts on the ground will almost certainly override ideological “solutions” as to the way things turn out long term. (In fact, large scale facts on the ground ultimately determine which solutions gain traction and get pursued in the first place.) The wall may be a “solution,” at least for some, but if a de facto “merger” of San Diego and Tijuana is really in the cards (and, trust me, assuming no material change in the “spread” in housing costs this is highly likely), it will prove to be a decisive “large scale fact on the ground.” In this scenario, the wall becomes nothing more than a tourist attraction and an art project.

At CWC we consider ourselves very much engaged with the issue of security for we are, when you think about it, in the “security” business. Our primary business purpose is to “deliver” financial security to those with whom we do business. But we are also participants in the creation or maintenance of the security of other constituencies. By “constituency,” I mean any person, group, organization or institution to whom we as a business have any kind of “performance responsibility.” These responsibilities may arise as the result of claims on us based on law, custom, duty, morality or simply good business practice. Whether acknowledged or not, all business operations impact the security of an enormous number of constituencies (that is, of an enormous number of people and institutions). And applying that definition, I can think of at least six “constituencies” to whom we have performance obligations, obligations that when satisfied translate into some measure of security for each (and, in turn, for us):

  1. Clients: We are in the business of providing to clients the various “ingredients” that constitute financial security. Clients are either Not There Yet (in which case we aid them in its achievement) or are There (in which case we aid them in its maintenance and enhancement). The impact of successful execution on our business purpose is obvious and crucial to client security.

  2. Employees: Just as “successful execution on our business purpose is obvious and crucial to client security,” so too is it crucial to the security of our employees.

  3. Owners: And this is no less true in the case of owners.

  4. Vendors: Of course. What holds for employees and owners holds with equal force for vendors, whose own successes are functions of the successes of the businesses they serve.

  5. Local, state and federal governments/tax authorities: Successful businesses pay taxes. Employees pay taxes. Governments fund virtually all outlays from taxes received. Circa 2015, about 47% of federal tax revenues were funded by income taxes paid by individuals; 34% were paid jointly by employees and employers in the form of payroll taxes; and 11% were paid by corporate taxes. You could say, and you would be right, that the financial security of governments rests largely on the shoulders of successful businesses and the revenues they generate and distribute.

  6. Our Community: Should you have any doubt about the relationship between business and community financial security think about what triggers off cycles of community decline and/or renewal. Such transitions almost always arise as a consequence of increasing unemployment or employment, increasing disinvestment or investment. Sooner or later community health, or lack thereof, can be measured in terms of commercial health, which is itself a function of business activity.

To this list of six, we could without a great conceptual leap add a seventh: Our Regulators. The regulatory regimes within which financial service businesses operate are very much constituencies of ours because, obviously, we have a duty to perform in accordance with laws and regulations that it is their “business” to enforce. Federal and state regulation is mandated by legislatures because, it is believed, an unregulated or under-regulated financial sector would give unscrupulous businesses undue scope to abuse consumers, investors and honest participants. While I believe this is a fair description of the “case” for regulation, it is not the fundamental one. The reason why any financial services professional should welcome appropriate (versus overreaching) regulation is that such regulation goes a long way toward assuring that the honest and well-intentioned “players in the space” (which means the majority of people and companies in our business) aren’t constantly having to do battle with “competitors” making extravagant promises, pushing faulty merchandise, manipulating stock prices and undertaking all the other contrivances so dear to the hearts of would-be corrupters of the financial marketplace. I characterize regulators as a constituency because, among other things, they serve as “enforcement partners” providing a degree of security to the space in which we operate.

But returning to the subjects that kicked off these musings, walls and security, I have a very strong sense that walls don’t buy us much, and what they actually deliver (as distinguished from the promises of their promoters) we don’t want.

First, though, I need to admit a bias. It seems to me that border walls are a kind of confession of national failure (where no such confession is warranted); a failure of nerve, of aspiration, of vision. They send a signal that a once great nation -robust, open, outward-looking, innovative, adventurous, positive -has lost its mojo and become preoccupied with security and protection.

The history of wall building shouldn’t give anyone, whatever their political persuasion, any comfort. Consider the Berlin Wall, construction of which was believed by its builders to secure their nation, but which proved to be the perfect symbol for a nation on a path to self-destruction. Consider the Maginot Line, the perfect symbol for a nation whose people needed to believe that a fixed defensive system could secure them from their enemies, a belief absurd on its face in an era of mobile offensive capabilities. Consider the Great Wall of China, far from the imposing and impenetrable barrier Chinese propagandists (and American presidents) have portrayed it to be. And consider the Strategic Defense Initiative (“SDI”) -dubbed ‘Star Wars’ by its promoters -the ultimate in “feel good” but otherwise empty national security proposals. SDI contemplated establishing a defensive shield -a sort of “great wall” in the sky --to protect this country against missile attacks. So far as I know, other than those who stood to benefit economically from its development (and those lost in the ideological fogs), there was not one competent scientist or defense expert who believed a workable missile defense was ever economically or technically feasible -- as in fact has proven to be the case, despite the hundreds of billions of dollars that have been spent in its name. Ultimately that “wall” wasn’t built because it was outrageously expensive and contemplated technologies that were both practically and theoretically incapable of even beginning to solve the problem it purported to address.

So … what to do?

Begin with the recognition that for as long as would-be immigrants believe moving here means they get a shot at the American Dream for themselves and, particularly, for their children, people will be drawn here. From the perspective of millions of people outside this country, we (the people of this country and our ancestors) have built a “city upon a hill (and) the eyes of all people are upon us.” I say: accept this as a reality and make it work in our favor. The alternative? Walls, watchtowers, massive detention centers, families sundered and, very troubling to anyone with a sense of history, an obsession with internal security and the correlative development of an ever-growing internal security apparatus (sometimes knows as “state security”).

How then to “make it work in our favor?” Think of the problem of “illegals” as having two parts: we have to deal with those determined to come and those that are already here.

As to those that are already here, this is what is known as a “large scale fact on the ground.” Smarter folks than me have long sought a legal solution that would allow certain classes of people here illegally to come out of the shadows and into the light of civil society. (Many of these immigrants have been here for years and have made material contributions to family, business and community life.) This seems to me fundamentally fair. But we can’t be indiscriminate. Check their health, their criminal records (don’t obsess about traffic citations or their equivalent) and even, perhaps, their ability to pay a small “entrance” fee, but let the general rule be that all are welcome to permanent, legal residency who meet these loose qualifications. (One of the possible happy byproducts of this approach would be that those who choose not to come out of the shadows are in effect identifying themselves as having some kind of history that “disqualifies” them. Law enforcement would have, therefore, a much more targeted and focused task.)

There are those who ask, “wouldn’t this be rewarding those who have broken our laws?” Strictly speaking, the answer is yes. But consider the problem in a fuller dimension. For the vast majority of the undocumented, it could be said that “all they did was come illegally because they sought the economic opportunities characteristic of life here, opportunities unavailable in their old countries,” or “all they did was come illegally because they wanted to live free from the fear that characterized life in their old countries.” I am reminded of Jean Valjean from Les Misérables: all he did was steal a loaf of bread. And I am reminded, too, that when you live in a city upon a hill, you assume certain “performance responsibilities.” This may be one of those cases where a particular interpretation of the law is one wherein “the letter killeth but the spirit giveth life.”

As to those not yet here who are determined to come, this, I think, is a stickier problem. We should certainly not just throw open the borders, so border security is an issue. There is, however, a dirty little secret associated with border security. It turns out that many technologically savvy voices are saying that it is feasible to secure the U.S.-Mexico border “technologically,” that is, with devices like sensors, along with an adequate supply of border enforcement personnel. But walls are “infrastructure” (a popular word at the moment), costly (which means substantial contracts for suppliers) and labor intensive (which means jobs). Whatever your opinion as to the efficacy of walls may be (to me, in addition to what I have already said, they are at best a feel good sop to people in need of reassurance that “something is being done,” and a “helpful” short term economic stimulant), they make great political hay for their promoters.

I am a believer in markets and I have often thought that there may be (at least the beginnings of) a market solution to this problem. The United States is a huge country. Conditions in Los Angeles aren’t those of Macon, Georgia. Conditions in Macon aren’t those of Portland, Maine. Conditions in Portland aren’t those of small-town Iowa. So why not craft a radically local immigration plan, one in which each locality (at as small a scale as possible) audits its “human resource” needs (farm workers, teachers, students, apprentices, gardeners, mechanics, health care workers, carpenters, day laborers … the list is endless) and then (through whatever government mechanism is established to administer submissions) notifies the world that it stands ready to accept any and all qualified folk, up to the specified limit of slots. In principle (and I accept that the devil is in the details) the consequences would be a material increase in the number of “legals” and a correspondingly material decrease in the number of “illegals.” There could be other benefits. It could have the effect of bringing into equilibrium existing mismatches between labor supply and labor demand. It could result in the “revitalization” of a least some (particularly smaller) communities now suffering the unpleasant consequences of brain and brawn drain. This plan (as would the plan regarding those already here) could also reverse what is now the (seemingly inevitable) slow motion destruction of Medicare and Social Security. Ultimately, there is no saving these systems (without significant extensions of retirement ages, significant increases in participant contributions, significant reductions in benefits or, in the case of Medicare, significant rationing of coverage) so long as the beneficiary population grows and the contributing population declines. What both systems need to survive, in anything like their present forms, is the participation of large numbers of new and younger contributors.

If you have tracked through all this with me so far you might be asking, “is there a common thread that ties all this (‘performance obligations,’ constituencies, walls, alternative immigration plans, social safety nets) together?” I think there is. It has to do with security. I don’t believe there is any such thing as personal financial security in isolation from national security. I believe that the achievement of national security requires more than just a strong military. I believe that border walls provide only the illusion of security. I believe that immigration policies can be constructive and have the potential for strengthening our communities and our social safety nets while reflecting the best of what this country stands for. This is why I view a generous and humane immigration policy (and one which “works for us” in a practical, even cold-blooded, way) as a significant component of individual and national security.

Chris Weil

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