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It's not just oil pollution, over-fishing, fertilizer run-off, plastic or exotic species invasions: Science report says climate change is permanently damaging oceans

July 7th, 2010 No comments

I’ve addressed the poor health of the world’s oceans quite recently, in response to a flip comment  by Lew Rockwell about how the “ecosystem” is likely to “survive and thrive” regardless of environmental and/or political debacles. Further reports of an increasingly serious situation continue to appear.

Further to the information I provided there, I’d like to draw readers’s attention to a recent report in Science and to a recent article in The Economist:

1. Science, June 18, 2010

Here’s the blurb (emphasis added)

The Impact of Climate Change on the World’s Marine Ecosystems

Ove Hoegh-Guldberg1,* and John F. Bruno1,2


Marine ecosystems are centrally important to the biology of the planet, yet a comprehensive understanding of how anthropogenic climate change is affecting them has been poorly developed. Recent studies indicate that rapidly rising greenhouse gas concentrations are driving ocean systems toward conditions not seen for millions of years, with an associated risk of fundamental and irreversible ecological transformation. The impacts of anthropogenic climate change so far include decreased ocean productivity, altered food web dynamics, reduced abundance of habitat-forming species, shifting species distributions, and a greater incidence of disease. Although there is considerable uncertainty about the spatial and temporal details, climate change is clearly and fundamentally altering ocean ecosystems. Further change will continue to create enormous challenges and costs for societies worldwide, particularly those in developing countries.


1 Ocean and Coasts Program, Global Change Institute, University of Queensland, St. Lucia, QLD 4072, Australia.
2 Department of Marine Sciences, University of North Carolina, Chapel Hill, NC 27599, USA.

* To whom correspondence should be addressed. E-mail: [email protected]

McClatchy has good coverage (Les Blumenthal, Julky 4, 2010)(emphasis added)


A sobering new report warns that the oceans face a “fundamental and irreversible ecological transformation” not seen in millions of years as greenhouse gases and climate change already have affected temperature, acidity, sea and oxygen levels, the food chain and possibly major currents that could alter global weather.

The report, in Science magazine, brings together dozens of studies that collectively paint a dismal picture of deteriorating ocean health.

“This is further evidence we are well on our way to the next great extinction event,” said Ove Hoegh-Guldberg, the director of the Global Change Institute at the University of Queensland in Australia and a co-author of the report.

John Bruno, an associate professor of marine sciences at the University of North Carolina at Chapel Hill and the report’s other co-author, isn’t quite as alarmist, but he’s equally concerned.

“We are becoming increasingly certain that the world’s marine ecosystems are reaching tipping points,” Bruno said, adding, “We really have no power or model to foresee” the impact.

The oceans, which cover 71 percent of the Earth’s surface, have played a dominant role in regulating the planet’s climate. However, even as the understanding of what’s happening to terrestrial ecosystems as a result of climate change has grown, studies of marine ecosystems have lagged, the report says. The oceans are acting as a heat sink for rising temperatures and have absorbed about one-third of the carbon dioxide produced by human activities.

Among other things, the report notes:


  • The average temperature of the upper level of the oceans has increased more than 1 degree Fahrenheit over the past 100 years, and global ocean surface temperatures in January were the second warmest ever recorded for that month.

  • Though the increase in acidity is slight, it represents a “major departure” from the geochemical conditions that have existed in the oceans for hundred of thousands if not millions of years.

  • Nutrient-poor “ocean deserts” in the Pacific and Atlantic oceans grew by 15 percent, or roughly 2.5 million square miles, from 1998 to 2006.

  • Oxygen concentrations have been dropping off the Northwest U.S. coast and the coast of southern Africa, where dead zones are appearing regularly. There is paleontological evidence that declining oxygen levels in the oceans played a major role in at least four or five mass extinctions.

  • Since the early 1980s, the production of phytoplankton, a crucial creature at the lower end of the food chain, has declined 6 percent, with 70 percent of the decline found in the northern parts of the oceans. Scientists also have found that phytoplankton are becoming smaller.

Volcanic activity and large meteorite strikes in the past have “resulted in hostile conditions that have increased extinction rates and driven ecosystem collapse,” the report says. “There is now overwhelming evidence human activities are driving rapid changes on a scale similar to these past events.

Many of these changes are already occurring within the world’s oceans with serious consequences likely over the coming years.”

One of the consequences could be a disruption of major ocean currents, particularly those flowing north and south, circulating warm water from the equator to polar regions and cold water from the poles back to the equator. Higher temperatures in polar regions and a decrease in the salinity of surface water due to melting ice sheets could interrupt such circulation, the report says.

The change in currents could further affect such climate phenomena as the El Nino-Southern Oscillation, the Pacific Decadal Oscillation and the North Atlantic Oscillation. Scientists just now are starting to understand how these phenomena affect global weather patterns.

“Although our comprehension of how this variability will change over the coming decades remains uncertain, the steady increase in heat content in the ocean and atmosphere are likely to have profound influences on the strength, direction and behavior of the world’s major current systems,” the report says.

Kelp forests such as those off the Northwest U.S. coast, along with corals, sea grasses, mangroves and salt marsh grasses, are threatened by the changes the oceans are undergoing, the report says. All of them provide habitat for thousands of species.

The polar bear isn’t the only polar mammal that faces an escalating risk of extinction, the report says; penguin and seal populations also are declining.

“It’s a lot worse than the public thinks,” said Nate Mantua, an associate research professor at the University of Washington’s Climate Impacts Group.

Mantua, who’s read the report, said it was clear what was causing the oceans’ problems: greenhouse gases. “It is not a mystery,” he said.

There’s growing concern about low-oxygen or no-oxygen zones appearing more and more regularly off the Northwest coast, Mantua said. Scientists are studying the California Current along the West Coast to determine whether it could be affected, he added.

Richard Feely, a senior scientist with the National Oceanic and Atmospheric Administration’s Pacific Marine Environmental Laboratory in Seattle, said the report in Science seemed so direct because one of the authors was Australian.

“Australians come at you full-bore and lay it on the line,” Feely said.

Even so, he said, the condition of the oceans is indeed deteriorating.

The combination of these impacts are tending to show they are additive,” he said. “They combine to make things worse.”

Asked what the oceans will be like in 50 years if trends aren’t reversed, Bruno, the UNC professor, said that all the problems would have accelerated and there’d be new ones. For instance, he said tens of thousands of species found only in the Pacific might migrate across the top of North America as the sea ice melts and enter the Atlantic, where they’ve never been.

Bruno said a 50-year time frame to consider changes in the ocean was way too short, however.

“I am a lot more worried about 200 to 300 years out,” he said



What strikes me the most about the recent science coming out on this topic, is the degree to which we are modifying fundamental physical and biological processes by warming the oceans. The warming doesn’t just kill sensitive species, it modifies everything from enzyme kinetics, to plant photosynthesis and animal metabolism, to the developmental rate and dispersal of larval (baby) fish to changing the ways food webs and ecosystems function. And the big surprise, at least to me, is how quickly this is all happening. We are actually witnessing these changes before we predict or model them. This isn’t theoretical; this is a huge, real-world problem. Moreover, we, not just our children, will be paying the price if we don’t get a handle on this problem very soon.





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Oct. 17, 2019 Petition filed by Carlos Ghosn’s lawyer for Dismissal of Prosecution

January 5th, 2020 No comments
Note: The below is an English version of a Petition for Dismissal of Prosecution that was filed by Hiroshi Kawatsu, a member of Carlos Ghosn’s legal team, with the Tokyo District Court on October 17, 2019.
It was posted in the “NBR’s_Japan_Forum” email forum. I have edited the formatting to improve readability. At this point, I have not seen the Japanese original.
The attorney who apparently wrote this is Hiroshi Kawatsu, who is a partner in the Kasumigaseki-sogo Law Office (for twenty years) and is the Director of the Research Office for Criminal Affairs of the Japan Federation of Bar Associations. More on his background here:
To: Tokyo District Court, 17th Criminal Division Department 2019 Toku (Wa) No.14 Companies Act Violation Criminal Case Defendant: Carlos Ghosn Bichara
Lead Defense Counsel:
Intended Claims Document
I. Petition for Dismissal of Prosecution
October 17, 2019
Hiroshi Kawatsu
The prosecution of this case is based on an extremely illegal and prejudicial investigation, and is an abuse of the official authority of criminal prosecution for unfair purposes against a backdrop of discrimination against Mr. Carlos Ghosn’s race, nationality and social standing. This prosecution should be dismissed.
1. Background — the Nissan-Renault integration “crisis”
Mr. Carlos Ghosn, from the time that he became the COO of Nissan in June 1999, understood that the key to the success of the alliance was mutual respect of each company’s autonomy and culture. With a deep understanding of Nissan’s history and corporate culture, Mr. Ghosn spearheaded the “Nissan Revival Plan.” In just 2 years, Mr. Ghosn was able to turn Nissan, which had an interest-bearing debt of more than 2 trillion yen and was on the verge of bankruptcy, back to being a profitable company and grow into one of the world’s leading automakers. Mr. Ghosn was consistent in his stance of protecting Nissan’s corporate identity. Even after he became the CEO of both Nissan and Renault in April 2005, thereby becoming responsible to the shareholders
of not just Nissan but also Renault, his attitude, based on his management beliefs, never changed. Renault’s largest shareholder, the French government, occasionally began to talk about building the closeness of the alliance between the two companies, referring to it as “irreversible integration.” In 2015, Minister of Economy, Industry and the Digital Sector, Emmanuel Macron, increased the French government’s shareholding ratio of Renault, and then applied the Florange Law to Renault which doubles the voting rights of long-term shareholders. This enabled the French government to reinforce its voice with Nissan through Renault which owns 43.3% of Nissan stock. Even so, Mr. Ghosn did not change his policy. He made the French government recognize that Nissan was going to maintain its autonomy. He loved the company that is Nissan. Mr. Ghosn became the Director Chairman in April 2017, and Mr. Hiroto Saikawa (hereafter, “Mr. Saikawa”) replaced him as CEO. When Macron became President the same year, the pressure from the French government to move towards “irreversible integration” became stronger. Mr. Ghosn’s position to take a stand against the French government to protect Nissan’s autonomy did not change. However, at the same time, Mr. Ghosn came to think that there is no choice but to restructure the strategic partnership of the alliance in a way that can be explained to Nissan’s largest shareholder, Renault (the French government). Each company of the alliance would be placed under the umbrella of a newly incorporated holding company, and each company would get a say based on their performance. The French government ought to be satisfied with this new structure. Mr. Ghosn began to explain this idea to some of the directors
of Nissan as well.
Those in Mr. Ghosn’s inner circle, as well as other officers of the Company began to sense Renault’s (the French government’s) yearning for an integration with Nissan, and the subtle changes in Mr. Ghosn’s way of thinking. In particular, some of Nissan’s Japanese officers believed that the new structure of the alliance would essentially mean the “integration” of Nissan and Renault.
Nissan is one of the group companies of the “Nissan Konzern [Conglomerate]” which was a newly-rising zaibatsu [family-run conglomerate] of the pre-war era, and has been manufacturing cars under the Datsun brand since before the war. The founder, Yoshisuke Ayukawa’s lineage is one of a father who was a feudal warrior of the Choshu domain and a mother who was the niece of former senior statesman Kaoru Inoue during the Meiji period. Ayukawa was a powerful entrepreneur and politician who also served after the war as a member of the House of Councilors and as Supreme Economic Advisor in the Kishi Cabinet. The company name “Nissan” derives from one of the group companies, “Nihon Sangyo” [Japanese Industry]. Some also believed that Nissan’s integration with Renault would mean that a company with the history of having a role in Japan’s key industry would pass over to the hands of foreigners. This belief was shared not only among the directors of Nissan, but also among key figures in the Japanese government, beginning with the Ministry of Economy, Trade and Industry.
2. Collusion between Nissan and the Task Force of the Tokyo District Public Prosecutors Office
After Mr. Ghosn stepped back as CEO in April 2017, Nissan’s business performance noticeably declined. Along with this, remarks by Renault (French Government), the largest shareholder, began to attract attention. The “integration” of Nissan and Renault became a realistic crisis to succeeding CEO, Mr. Saikawa, and other Japanese officers of Nissan.
Around January 2018, the French government informed the Japanese government that it intended to integrate the management of Nissan and Renault. In response, the [Japanese] Ministry of Economy, Trade and Industry (METI) sent a letter of opposition to the French Ministry of the Economy and Finance. Talks were held among the METI (Director-General Akihiro Tada, Manufacturing Industries Bureau), the French Ministry of the Economy and Finance (Director General Faure), the Agence des participations de l’État (APE) [French state holding agency] (Director Vial), among others, but no progress was made.
In February of the same year, Renault’s Board of Directors passed a resolution reappointing Mr. Ghosn as CEO until 2022. Nissan’s Japanese officers believed that the “integration” has increasingly become more realistic. Around March of the same year, Senior Managing Executive Officer Hitoshi Kawaguchi, Statutory Auditor Hidetoshi Imazu, and former Vice-Minister for International Affairs, Ministry of Economy, Trade and Industry Masakazu Toyoda (who became a director of Nissan in June of the same year), with others, led a top-secret effort to form a group to investigate the “improper acts” of Mr. Ghosn. Their aim was to prevent the integration of Nissan and Renault by finding Mr. Ghosn’s “improper acts” and ousting him from Nissan. So as to absolutely ensure that non-Japanese officers including Mr. Ghosn and Mr. Greg Kelly would not find out, they went through a former prosecutor with the Tokyo District Public Prosecutors Office’s Task Force, Akihide Kumada and others, to consult with the prosecutors of the Tokyo District Public Prosecutors Office’s Task Force, and while receiving their instructions, conducted a top-secret investigation to search for “improper acts” that could be established as a criminal case against Mr. Ghosn.
They asked Senior Managing Executive Officer in charge of Legal and Compliance, Mr. Hemant Kumar Nadanasabapathy (hereafter, “Mr. Hari Nada”), and attorneys of one of Nissan’s legal advisers, the law firm of Latham & Watkins (L&W), to conduct an investigation of the companies affiliated with the alliance, not just in Japan but worldwide. Mr. Hari Nada and the attorneys at L&W sent out letters to the management of affiliate companies worldwide to cooperate with the investigation, to appear at the Tokyo District Public Prosecutors Office and comply with the interrogations by the prosecutors, and which outlined that related expenses, etc. would be borne by Nissan, etc. Mr. Hari Nada and L&W were deeply involved in the events that were the subject of the investigation in the first instance. Investigative activities led by them are a conflict of interest, and lack impartiality. They, who were themselves in charge of the investigation, cast a blind eye to their own “improper acts” as well as those of Mr. Saikawa and
other Japanese executives, while single-mindedly searching for “improper acts” by Mr. Ghosn. The purpose of this unjust and biased investigation was to restructure the relationship between Nissan and Renault (French government) by unseating Mr. Ghosn and preventing the “integration” of the two companies.
The investigative team of the Tokyo District Public Prosecutors Office accepted the results of such unfair and biased investigation and commenced their criminal investigation. Furthermore, as described below, they also engaged in illegal investigative activities in Lebanon, Brazil, France, etc. using Nissan and its attorneys at its beck and call.
3. Illegal plea bargaining
(1) Illegality of the objective
The Public Prosecutors state that they reached an agreement with Mr. Hideaki Ohnuma (head of Nissan’s Secretariat Office; hereafter, “Mr. Ohnuma”) and Mr. Hari Nada (in charge of Nissan’s Legal Division) under the consultation and agreement program (the Japanese version of plea bargaining) of the 2016 Amended Code of Criminal Procedure to, in exchange for not indicting these two individuals, have them make witness statements and submit evidence to the prosecutors about the criminal charges against Mr. Ghosn who is believed to be an “accomplice.” However, this consultation and agreement (plea deal) was reached with the objective of ousting Mr. Ghosn from his position of Chairman and CEO of the Nissan- Renault-Mitsubishi Alliance based on discussions that were held between METI officials and the Japanese senior management executives of Nissan.
The objective is completely different from the intended purpose of the program, which is to, in cases where it is difficult to uncover the truth by conventional methods, offer accomplices advantageous prosecutorial treatment in exchange for cooperation with the investigation and prosecution of the case, so as to uncover the truth and prosecute the case appropriately.
(2) The actual party is Nissan
The prosecutors claim that of the criminal charges that have been alleged against Mr. Ghosn, consultations were held and an agreement reached with Mr. Ohnuma and Mr. Hari Nada regarding only the Financial Instruments and Exchange Act violations case (falsification of securities reports), and that as a result of plea bargaining on matters related only to those charges, those charges were dropped against these two individuals, but nothing could be further from the truth. First, these two individuals are not the actual parties in the plea bargain. It was the attorneys that were hired by the corporate entity of Nissan and its Japanese senior management executives that brought the case to the Tokyo District Public Prosecutors Office, cooperated with prosecutors, and reached an agreement. These attorneys were hired by Nissan for the purpose of searching for “improper activities” that would make Mr. Ghosn a suspect and, together with attorneys from L&W, communicated with the Tokyo District Public Prosecutors Office and conducted an “investigation” — the search for something with which to charge Mr. Ghosn.
As a result of the “investigation,” Nissan and the Tokyo District Public Prosecutors Office determined that Mr. Hari Nada and Mr. Ohnuma could potentially be charged as accomplices in the case involving violations of the Financial Instruments and Exchange Act and the case involving violations of the Companies Act, and decided to adopt a scheme in which Mr. Hari Nada and Mr. Ohnuma would be made the parties to a plea deal. Mr. Hari Nada and Mr. Ohnuma did not take the initiative on their own, nor make the decision on their own will, to cooperate with the prosecution of Mr. Ghosn. They were persuaded by Nissan — the Japanese senior management executives and Nissan’s attorneys — and merely signed the written agreement in obeyance of basically what was a “Company order.” This kind of application of the consultation and agreement program goes against its intended purport, and is illegal.
(3) Legal procedures were not carried out for crimes that were subject to plea bargaining
The content of the written agreements with Mr. Ohnuma and Mr. Hari Nada (Kou Exhibit 147, Kou Exhibit 148) in which the prosecutors demanded the examination of evidence state that an agreement was reached regarding the case involving violations of the Financial Instruments and Exchange Act, but there is no reference to the case involving violations of the Companies Act which is also a charge of the action — that an agreement was executed with Shinsei Bank that switched the party to swap agreements to Nissan (the charged facts in relation to the swap agreements), that payment of 14.7 million dollars was made to Khaled Juffali (the charged facts in relation to KJC), and that payment of 5 million dollars was made to Suhail Bahwan Automobiles (SBA) (the charged facts in relation to SBA). However, both Mr. Ohnuma and Mr. Hari Nada have provided witness statements regarding the case involving violations of the Companies Act (e.g. Kou Exhibits 40 through 44, Kou Exhibits 149, Kou Exhibits 174, Kou Exhibits175 of the Companies Act violation case).
With Mr. Ohnuma and Mr. Hari Nada, the prosecutors have engaged in plea deals in an informal manner, not based on the provisions of the law (to have accomplices make statements that implicate others in a crime by inducing them with advantages). It is illegal to engage in virtual plea bargaining without following the legal procedures, and it is not permissible to allow the resulting statements and evidence.
(4) An “under-the-table deal” was made
It was neither Mr. Ohnuma, the individual, nor Mr. Hari Nada, the individual, that brought up the idea of a plea deal with the prosecutors. It was Nissan, the company, its Japanese senior management executives, and the attorneys they hired, that proposed the criminal prosecution [of Mr. Ghosn] to the Task Force of the Tokyo District Public Prosecutors Office, and
proactively promoted the transaction consisting of providing evidence and witness testimony from those involved in exchange for not prosecuting them. As a result, consultations and agreements were effectively carried out between Nissan CEO Mr. Saikawa and multiple other individuals at Nissan, and the prosecutors of the Tokyo District Public Prosecutors Office’s Task Force regarding the provision of testimony and evidence disadvantageous to Mr. Ghosn in exchange for the dropping of criminal charges against such individuals.
In particular, Mr. Saikawa is a submitter of the Annual Securities Reports said to contain “misstatements” in relation to Mr. Ghosn’s director compensation in the Financial and Instruments Exchange Law violation case. Furthermore, he himself is the person who approved and decided the payment from the “CEO reserve” in the Companies Act violation case. It is clear that he was investigated as a suspect in these cases, and that the Tokyo District Public Prosecutor’s Office did not prosecute him in exchange for providing testimony and evidence that is disadvantageous to Mr. Ghosn. However, the Toyo District Public Prosecutor’s Office has not revealed whether a consultation and agreement has been made with Mr. Saikawa, and has refused to respond to requests for disclosure of evidence regarding this.
There are numerous other directors and employees of Nissan other than Mr. Saikawa that were involved in the acts stated in the prosecutors’ charges in this matter. Facing threats displayed by Nissan and the prosecutors that they may be subject to criminal prosecution, they were pressured to make statements in accordance to the wishes of Nissan and the prosecutors – statements that Mr. Ghosn behaved like a “dictator,” and that because they couldn’t defy his authority, they had no choice but to take part knowing it was wrong. It was based on this kind of an extensive “under-the-table deal” and unjust inducements that the indictment was carried out.
4. Illegal search and seizure
(1) Seizure of attorney Mr. Fadi Gebran’s personal computer and HDD, etc.
Mr. Ghosn’s personal residence that is also used as an office located in Beirut is managed by a local company called Phoinos, and Ms. Amal Abou Jaoude who was the representative of Phoinos was in charge of managing its affairs. Her salary and other expenses were paid by Nissan Middle East. Ms. Amal Abou Jaoude had at one time worked as a secretary of attorney Fadi Gebran, who passed away in August 2017, and managed the computer and other items he had left behind, as well as took care of his remaining affairs.
On November 19, 2018 (Beirut time), attorneys from L&W stole attorney Fadi Gebran’s PC and HDD which Ms. Amal managed, from her in Beirut. This PC and HDD contained a large amount of personal information such as email exchanges between attorney Fadi Gebran and his clients. The so-called evidence that prosecutors say they have obtained in this case as a result of analyzing the emails of attorney Fadi Gebran, etc. (for example, Kou Exhibit 182 forward of the Companies Act violation case) were discovered from the PC and HDD that the attorneys from L&W and others took without permission at this time.
They raided Ms. Amal Abou Jaoude’s office, and invaded Mr. Ghosn’s empty home while consulting with the Tokyo District Public Prosecutors Office in advance, and stole the PC, HDD and the contents saved therein without the consent of the proprietors, such as attorney Fadi Gebran’s surviving family and his clients. Acting as the hands and feet of the Tokyo prosecutors, they committed crimes of stealing data from other’s PC and HDD. The use by an investigator of a private citizen to carry out a search and seizure in order to circumvent the requirements of the warrant system (Article 35 of the Japanese Constitution) is, in itself, a serious illegal act that effaces the principles of the warrant system. It is also illegal and impermissible that the investigation authorities of the Japanese government use a private citizen, circumventing the formal legal process to gather information abroad where its investigative authority does not reach.
Furthermore, an enormous volume of communications with clients and documents prepared for clients was saved in attorney Gebran’s PC and HDD. These [communications and documents] are strongly protected as attorney-client privilege, not only within Lebanon, but around the world by international human rights laws, domestic constitutions and domestic laws. If this were not the case, one would not be able to solicit [services] from attorneys overseas with respect to international matters. The Tokyo District Public Prosecutor’s Office, as well as the L&W attorneys, seized these being fully aware that they contained a large amount of information subject to the attorney-client privilege.
The admissibility of evidence obtained as a result of such an illegal investigation must, of course, be denied. However, the illegality of the investigation and prosecution in this case is not something that can be straightened by simply excluding part of the evidence.
(2) Invasion of home/office in Rio de Janeiro
Mr. Ghosn’s personal residence that is also used as an office located in Rio de Janeiro is managed by a company called Hamsa, and Ms. Vania Rufino was in charge of managing its affairs. On November 19, 2018 (local time), an employee of Nissan Brazil made an unannounced visit to Ms. Ruffino’s office and questioned her asking such things as, “Did you do personal work for Carlos Ghosn?” In addition to a cell phone, PC, etc., all documents were also seized, and without providing any reason, Ms. Rufino was ordered to take a leave of absence. After that, the employee of Nissan Brazil proceeded to lock Mr. Ghosn’s house so that Mr. Ghosn or any of his family could not enter the home.
This, too, was nothing other than an illegal search and seizure that was conducted upon discussion between the Japanese prosecutorial authorities and Nissan.
(3) Search and Seizure in Tokyo on April 4, 2019
Early in the morning around 5:50 am on April 4, 2019, the Task Force of the Tokyo District Public Prosecutors Office arrested Mr. Carlos Ghosn on charges of violation of the Companies Act. At the time of his arrest, the Task Force also confiscated a personal computer, 3 smartphones, and a passport (issued by the country of Lebanon) that belonged to Mr. Ghosn’s wife, Mrs. Carole Ghosn, who was at the restricted residence where Mr. Ghosn was arrested. Mrs. Carole Ghosn who was shaken with fear was then intimidated and made to say the passwords on the smartphones.
The prosecutors claim that this seizure was a legitimate seizure carried out on the basis of a legally obtained search and seizure warrant. However, that warrant covered Mr. Ghosn’s belongings inside of his home, not Mrs. Carole Ghosn’s. The prosecutors deceived the court by lying that Mrs. Carole Ghosn’s PC, smartphones and passport were Mr. Ghosn’s possessions. The prosecutors and administrative officers of the Tokyo District Public Prosecutors Office who were involved in this search and seizure seized Mrs. Carole Ghosn’s PC, smartphones and the like having full knowledge of this.
Mrs. Carole Ghosn’s PC and smartphones that were seized based on this illegal search and seizure also included many e-mails and other communications between her and her lawyers. This is clearly an infringement of Mrs. Carole’s attorney-client privilege.
The PC and smartphones seized from Mrs. Carole also included data that related to communications between Mr. Ghosn and his lawyers. Furthermore, the notebook that Mr. Ghosn used while he was detained in the Tokyo Detention House to exchange information with his lawyers was also seized. Needless to say that this is illegal and a violation of Mr. Ghosn’s right to consult with his lawyers (Article 34 of the Constitution, Article 39, Paragraph 1 of the Criminal Procedure Code).
This illegal search and seizure should result of course in the exclusion of evidence; however, beyond that, this illegal [act], coupled with the other illegal [acts], invalidates the entirety of the
prosecution in this case.
5. Infringement of the right to a speedy trial
It was from around the Spring of 2018 that the Tokyo District Public Prosecutors Office, together with Japanese top management officials at Nissan, began investigating Mr. Ghosn’s “improper activities” as well as engaged in investigative activities related to the violations of the Financial Instruments and Exchange Act and the Companies Act which became the causes of action. Yet, they broke up the facts that were the subject of the investigation into small pieces and detained Mr. Ghosn repeatedly. With respect to the Financial Instruments and Exchange Law violation case, they even repeated arrests for every fiscal year. With respect to the Companies Act violation case as well, irrespective of the fact that they had obtained statements from Nissan directors by the beginning of 2019, they delayed the timing of his arrest. Moreover, they arrested Mr. Ghosn for the fourth time for violation of the Companies Act just as he was about to start preparing for trial for the case he was released on bail and indicted. As a result, Mr. Ghosn was held in custody for as many as 130 days.
Even with regard to the pretrial conference procedures, the prosecutors took as many as 4 months to submit the facts that they sought to prove. Also, the prosecutors delayed their answers to requests that were made by Mr. Ghosn’s attorneys for the disclosure of evidence, and failed to make clear when the evidentiary disclosure period would end. Furthermore, the prosecutors are engaging in illegal acts, violating legal requirements such as by limiting the disclosure to viewing by Mr. Ghosn’s attorneys only and by deleting electronic data subject to disclosure at Nissan’s request. They are returning evidence seized at Nissan’s request, ignoring Mr. Ghosn’s attorneys’ request for disclosure of evidence. As a result, the Companies Act violation case is still remiss, and similarly with respect to the Financial Instruments and Exchange Law violation case for which [Mr. Ghosn] was indicted in December 2018, the disclosure of evidence has not been
completed, nor is there even an outlook for completion.
In this way, the defense’s preparations have been obstructed and delayed, while on the other hand, the prosecutors continue to this day to conduct “supplementary investigations” by obtaining statements and evidence from involved persons residing overseas based on investigational assistance from the relevant foreign governments. They are still continuing the investigation that should have been completed prior to indictment. Even now, after more than 10 months since the initial indictment, there is no timeline for the start of a trial.
Mr. Ghosn’s right to a speedy trial (Article 37, Paragraph 1 of the Japanese Constitution; Article 14, Paragraph 3(C) of the International Covenant on Civil and Political Rights) has already been seriously infringed.
6. Illegal interference with personal life
From around March 6, 2019, ever since Mr. Ghosn was released on bail, Mr. Ghosn and his family have been followed by police officers or their affiliates. They are not inconspicuous in the way that they follow Mr. Ghosn and his family members, and in fact, linger around them in plain sight. This constant monitoring of Mr. Ghosn and his family even after his release has caused them mental anguish in their daily lives. This is a violation of Mr. Ghosn’s right to privacy and right to a peaceful everyday life.
Mr. Ghosn is not a terrorist, nor a member of an organized crime group. He is an international company executive. There is no legitimate reason, anywhere, for having to monitor him for the safety of the local community. Under this situation where Mr. Ghosn and his family are subject to regular psychological persecution by the investigational and prosecutorial authorities, Mr. Ghosn clearly cannot engage sufficiently in his defense activities. Mr. Ghosn’s right to a fair trial (Article 14, Paragraph 1 of the International Covenant on Civil and Political Rights; Article 37, Paragraph 1 of the Japanese Constitution) is also being compromised.
7. Information leaks and comments about guilt
The prosecutors told some members of the media in advance about the pending arrest of Mr. Ghosn before his actual arrest, thereby enabling them to report on the scene of his arrest at Haneda Airport. The prosecutors then repeatedly leaked one-sided and arbitrary information about their investigation to the media, such as that there is an abundance of evidence that shows Mr. Ghosn’s guilt: that agreements with Mr. Ghosn pertaining to his compensation had been obtained from those involved at Nissan (Asahi Shimbun Newspaper, November 27, 2018, evening edition), that there is evidence that future payments of compensation had already been fixed (Asahi Shimbun Newspaper, November 29, 2018, morning edition), or that “there are documents outlining payment methods” (Asahi Shimbun Newspaper, December 11, 2018), thereby giving the impression that there was abundant evidence of Mr. Ghosn’s guilt. The prosecutors, even though they still to this day have not proven anything, continued to leak information one after the next to suggest there was ample evidence to support the suspicion of aggravated breach of trust, such as that: a total of 14.7 million dollars was remitted in 4 installments from a subsidiary of Nissan to an acquaintance in Saudi Arabia (Asahi Shimbun Newspaper, December 22, 2018, morning edition); “funds in excess of 5 billion yen were caused to be disbursed from Nissan to the companies of 2 acquaintances in the Middle East” (Nihon Keizai Shimbun Newspaper, January 4, 2019); an executive of a sales distributor in Oman to which 3.5 billion yen was disbursed from a “CEO discretionary reserve” that is “under the direct jurisdiction” of Mr. Ghosn “paid approximately 1.6 billion yen as payment for a cruiser” that was purchased by a company in which Mr. Ghosn is involved (Nihon Keizai Shimbun Newspaper, January 11, 2019); “There is suspicion that Nissan funds were funneled to former Chairman Ghosn through GFI” (Asahi Shimbun Newspaper, April 4, 2019, morning edition), etc.
The prosecutors continued to make one-sided comments that assumed Mr. Ghosn’s guilt such
as that: “there was a cover-up to hide executive compensation” (Asahi Shimbun Newspaper, December 2, 2018, morning edition); “the Saudi business man [Juffali] has no actual business entity” (Asahi Shimbun Newspaper, December 26 2018); “falsifications were made to make it appear as though approval of the Board of Directors was obtained for the switching [of contract parties]” (Asahi Shimbun Newspaper, December 30, 2018); based on e-mails and the like that remained in a personal computer at the offices of a lawyer in Beirut, “it has been determined that the suspect, Ghosn, essentially owned GFI and allocated Nissan funds for private use” (Sankei Shimbun Newspaper, April 9, 2019, morning edition), etc. Based on these arbitrary and one- sided comments by the prosecutors, the media incessantly painted Mr. Ghosn as a villain who exploited the company for personal gain.
Meanwhile, the prosecutors also provided information about the investigation to the media that was in line with the interests of Nissan and its Japanese senior management executives such as that: Shinsei Bank demanded that the approval of the Board of Directors of Nissan be obtained, but Mr. Ghosn rejected it (Asahi, December 23, 2018, morning edition); Charges have been dropped against President and CEO Hiroto Saikawa who was accused of violating the Financial Instruments and Exchange Act due to “lack of evidence” (Asahi Shimbun Newspaper, May 18, 2019, morning edition), etc.
The media outlets competed in continuing coverage that was based on such information from the prosecution and in line with their intensions. As a result, Mr. Ghosn’s public reputation did a 180 from being the “’savior’ and ‘charismatic management executive’ who ‘saved Nissan which was in crisis on the brink of bankruptcy, and growing it into a world-class company’” to “a dictator that exploited the company to fatten his own wallet.” By now, his “improper activities” are treated as unquestionable facts, and the focus has moved onto “recurrence prevention.” In such an environment, there is no denying that it will be a virtual impossibility to have a fair trial in which Mr. Ghosn is afforded his right to a presumption of innocence and his right to an
adequate defense.
Be that as it may, the prosecutors’ frequent leaks of information about the investigation while the prosecution of the case has been ongoing as well as comments made by them that assume the guilt of Mr. Ghosn are in and of themselves occupational crimes by the prosecutors, or comparable illegal acts.
The act of a prosecutor leaking information about the investigation to the media is “an act of leaking secrets that were learned in an official capacity on the job” (Article 100, Paragraph 1 of the National Public Service Act), which is itself a crime (Article 109, Item 12 of the National Public Service Act). As explained above, in this case, due to such crimes committed by the prosecutors, Mr. Ghosn has been denied of his right to receive a fair criminal trial (Article 14, Paragraph 1 of the International Covenant on Civil and Political Rights; Article 37, Paragraph 1 of the Japanese Constitution) which is a basic human right.
In this case, even though Mr. Ghosn has not been found guilty through a trial, he has repeatedly been publicly assumed guilty through the media at the hands of the prosecutors who are national public servants. This is a violation of another basic right of Mr. Ghosn, the right to be presumed innocent (Article 14, Paragraph 2 of the International Covenant on Civil and Political Rights; Article 11, Paragraph 1 of the Universal Declaration of Human Rights).
8. A cozy relationship with Japanese officers at Nissan and the Ministry of Economy, Trade and Industry
In Japan, prosecutors, who have a monopoly of authority over criminal prosecution, and furthermore, who are “given a broad range of discretionary power” in exercising said authority (Judgment of the Supreme Court of Japan, December 17, 1980, 1st Petty Bench Decision, Criminal Procedure Code precedent 34-7-672, p. 675) are not permitted to act simply as a unilateral party in a lawsuit. Prosecutors are not allowed to be a servant to some, or an advocate
for a private benefit, and must carry out their functions impartially and avoid all discrimination as to race, nationality, etc. (Article 13 (A) of the United Nations Guidelines on the Role of Prosecutors), “in representation of the public interest” for the purpose of demanding “the proper application of the law in court” (Article 4 of the Public Prosecutor’s Office Act).
In this case, the prosecutors of the Task Force of the Tokyo District Public Prosecutors Office ignored this most basic of professional obligations of a prosecutor, and acted as a tool for realizing the objectives of the Ministry of Economy, Trade and Industry and Nissan’s Japanese senior management executives to prevent Nissan from becoming a French company. The prosecutors aided the objective to oust Mr. Ghosn by searching for “improper activities” committed by him and to building a criminal case against him, and used tax money to help them to that end. The prosecutors held discussions with Nissan’s Japanese senior management executives and the attorneys that represented them, and abused the “consultation and agreement (plea bargaining) system” so as to give one-sided consideration to Nissan’s interests. The prosecutors circumvented the requirement of obtaining a warrant and infringed on national sovereignty by using Nissan’s employees and attorneys as tools for carrying out their investigation overseas. The prosecutors, in order to shift the public’s focus away from these one-sided and unfair investigational prosecutorial activities and to gain the support of public opinion, committed the crimes of violating confidentiality and repeatedly leaking information about the investigation. The prosecutors, when asked during the pretrial conference procedure about their information leaks asserted that, “We believe there hasn’t been something like this,” which is factually impossible. And the prosecutors have delayed the disclosure of evidence to defense counsel, and moreover refused the disclosure itself in response to Nissan’s requests.
9. Prosecution based on an illegal investigation
This indictment could not have been realized without the egregiously illegal investigation
involving white-collar crimes by public servants as described thus far, and constitutes “a case in which the illegal nature of investigative procedures is material, where the indictment would have been impossible or extremely difficult unless the illegal procedures were predicated, and in that sense, is a case in which the two situations are closely related and inseparable” (Judgment of the High Court of Sendai, October 17, 1967, High Court Decision Criminal Procedure Code precedent 20-5-699, p. 706).
Therefore, this case must be dismissed (Id.).
10. Arbitrary and discriminatory exercise of the authority of prosecution
This investigation originated with the Ministry of Economy, Trade and Industry and the Japanese senior management executives of Nissan who wanted to prevent the “irreversible integration” of Nissan and Renault and stop Nissan from becoming a French company, and with the aim of ousting Mr. Ghosn who, as CEO of Renault, was working to facilitate the integration of Nissan and Renault, searched for “improper activities” on the part of Mr. Ghosn, and bring criminal charges against Mr. Ghosn for such activities, requested the cooperation of the Tokyo District Public Prosecutors Office by way of conducting an investigation that included plea bargaining. The Task Force of the Tokyo District Public Prosecutors Office complied with this request and commenced an investigation into this matter. In carrying out their investigation, as described above, the prosecutors only took Nissan’s interests into account and worked collusively with Nissan and its attorneys. In this case, there is no doubt that Mr. Ghosn has been discriminated against based on his race, nationality and/or social status. This investigation and prosecution is a case of “the defendant being treated unfairly and unfavorably in an investigation compared to general cases because of their ideology, religion, social status, lineage, etc.” (Judgment of the Supreme Court of Japan, 2nd Petty Bench decision, June 26, 1981, Criminal Procedure Code precedent 35-4-426, p. 429, Akasakicho Case). This is a violation of Article 14 of the Japanese
Constitution, and is also in violation of Article 13(A) of the United Nations Guidelines on the Role of Prosecutors.
As explained above, this criminal prosecution has been based on extremely illegal investigation activities that constitute professional crimes. In addition, the prosecution itself cannot be said to have been carried out “in representation of the public interest” for the purpose of demanding “the proper application of the law in court” (Article 4 of the Public Prosecutor’s Office Act). This prosecution falls under the category of “an extreme case in which the prosecution of the case itself constitutes a professional crime” (Judgment of the Supreme Court of Japan, 1st Petty Bench, December 17, 1980, Criminal Procedure Code precedent 34-7-672, p. 676, Chisso-Kawamoto Case).
Therefore, this prosecution is unconstitutional, illegal, and invalid.
II. Statute of Limitations
  1. With respect to the indictments stated in the Charging Sheet, dated January 11, 2019 (excluding, however, the one with payment date of March 27, 2012), the seven-year statute of limitations period (Article 250, Paragraph 2, Section 4 of the Code of Criminal Procedure) has passed, and the statute of limitations has expired. A judgment should therefore be rendered to dismiss them (Article 337, Paragraph 4 of the Code of Criminal Procedure).
  2. Article 255, Paragraph 1 of the Code of Criminal Procedure specifies that, “where the offender is outside Japan,” the statute of limitations shall be suspended during the period when the offender is outside Japan. In regard to this point, with respect to the meaning of “where the offender is outside Japan,” a judgment by the Supreme Court of Japan, 1st Petty Bench on October 20, 2009, Keishu Vol. 63, No. 8, p. 1052 (hereinafter, the “2009 judgment”) ruled that “according to Article 255, Paragraph 1 of the Code of Criminal
Procedure, even in cases of temporary overseas travel, time during which an offender is outside Japan is interpreted as suspending the statute of limitations.” However, that ruling is not applicable to this case.
Rather, considering the legislative purpose and history of the system for suspending the statute of limitations, the interpretation of the requirement “where the offender is outside Japan” should be limited to not include overseas travel of less than two months.
  1. As an initial matter, this case is completely different from the 2009 judgment. Specifically, given that the purpose of Article 255, Paragraph 1 of the Code of Criminal Procedure concerns difficulty in the service of charging sheets, since the case of the 2009 judgment relates to Japanese nationals who were working in real estate brokerage, construction, and employment of foreign technical interns, it is believed to be a case where a “workplace” at which to effect service other than the defendant’s address or residence (Article 54 of the Code of Criminal Procedure, and Article 103, Paragraph 2 of the Code of Civil Procedure) could not be identified. In contrast, Mr. Ghosn was working consistently at Nissan’s main office, so service could have been effected at his workplace at any time, and there would have been no difficulty whatsoever in serving him charging sheets.
  2. In addition, considering the legislative purpose and history of the statute of limitations system, the ruling of the 2009 judgment is not applicable to this case.
(1) Given that the system for the statute of limitations exists, the benefit to defendants,
namely not being prosecuted after time has passed, is protected by law. As such, provisions depriving such benefits should be interpreted narrowly and in line with their substantial grounds.
(2) Furthermore, relative to when the 2009 judgment was made, new mutual legal assistance treaties with the E.U. and Russia have also come into effect, and there has actually been a marked increase in the number of cases where mutual assistance for investigations
has been given. Therefore, there has also been a reduction in the degree of difficulty occurring in investigations when defendants are outside Japan.
(3) Considering the legislative history in the first place, given that the purpose of suspending the statute of limitations concerns difficulty in serving transcripts of charging sheets, since transcripts of charging sheets can be served in the event of temporary overseas travel, and in light of the aforementioned reduction in the difficulty of investigation, etc., there is scant substantial reason at this point to deprive this benefit.
Thus, cases where an individual who has a residence and workplace in Japan engages only in temporary overseas travel (specifically, overseas travel of less than two months, which is specified as the period to serve charging sheets (Article 271, Paragraph 2 of the Code of Criminal Procedure)) should be interpreted as not suspending the statute of limitations. Accordingly, in relation to Mr. Ghosn, who has a residence and workplace in Japan, the statute of limitations is not suspended for periods of overseas travel in which he re-entered Japan within two months from the date he left the country.
  1. Calculated excluding overseas travel of less than two months, of the [indictments] in Charging Sheet No. 2, dated January 11, 2019, the end date for the statute of limitations for the one with payment date of March 9, 2011, is August 7, 2018. Therefore, at the time of the indictment, the statute of limitations had already expired.
    Among the indictments stated in this Charging Sheet, the statute of limitations has also similarly
    expired for those acts that were completed on March 9, 2011, or earlier.
  2. Thus, among the indictments concerning Mr. Ghosn, the statute of limitations has expired for the indictments stated in the Charging Sheet, dated January 11, 2019 (excluding, however, the one with payment date of March 27, 2012). A judgment should therefore be
    rendered to dismiss them (Article 337, Paragraph 4 of the Code of Criminal Procedure).
III. Charged facts regarding the swap contracts
1. Mr. Ghosn is innocent.
  1. (1)  There is no recognizable act committing an aggravated breach of trust in executing the novation agreement in this case because the act is not one that gave rise to an actual risk that Nissan would incur a “financial loss” (Company Act, Article 960 (1)).
  2. (2)  No “financial loss” (Company Act, Article 960 (1)) was inflicted on Nissan whatsoever.
  3. (3)  No intent (Criminal Code, Article 38 (1)) can be recognized either, because Mr. Ghosn
    was unaware of and did not affirm inflicting “financial loss” on Nissan.
  4. (4)  It is also not recognizable that the purpose of executing the novation agreement in this case was in contemplation of “his own interests or the interests of a third party”
    (Companies Act, Article 960 (1)) because the purpose contemplated the interests of Nissan.
2. (1) In 1999, Mr. Ghosn came to Japan and became a director to turn Nissan around. Because Mr. Ghosn’s family resided in the U.S. and their living costs were generally based on U.S. dollars, he asked to be paid in U.S. dollars; however, Nissan refused to do so. Therefore, from around 2002, Ghosn entered into foreign exchange swap agreements with financial institutions to periodically sell Japanese yen and purchase U.S. dollars.
(2) At the recommendation of a representative at Shinsei Bank, who stated that U.S. dollars can be purchased at favorable rates, Mr. Ghosn entered into the swap agreements between Canayany and Shinsei Bank. The purpose of the swap agreements was to exchange the yen that Mr. Ghosn received as remuneration from Nissan into dollars, and Shinsei Bank created the agreements based on Mr. Ghosn’s current and future yen cash flow. While the swap agreements provided that a certain amount of dollars will have to be purchased at a below-market exchange rate when the dollar/yen exchange rate was 100 yen or 80 yen or below per dollar, from 1999 (when Mr. Ghosn came to Japan) until 2007, not once did the
dollar drop below 100 yen.
(3)  The bankruptcy of Lehman Brothers in September 2008 triggered a worldwide financial crisis. Because of the rapid appreciation of the yen, and at the same time the drastic decline of stock prices, the collateral Mr. Ghosn had offered Shinsei Bank based on the swap agreements became insufficient. After October 24, 2008, the person in charge at Shinsei Bank requested Mr. Ghosn for an immediate increase in collateral, or to terminate and pay penalty fees. In the midst of the financial crisis, it was not possible for Mr. Ghosn to procure the collateral required by Shinsei Bank in just a few days, and in order to terminate the contract and pay the penalty fees, Mr. Ghosn’s only option was to resign from Nissan and apply the retirement allowance to the payment. However, leaving Nissan in the midst of the financial crisis would cause irreparable harm to the company, and was not an option that Mr. Ghosn could choose. Mr. Ghosn proposed guaranteeing the obligations himself under the swap agreements to Shinsei Bank but Shinsei Bank rejected the proposal, and the idea was presented that Nissan’s guaranty would be acceptable. In this context, the proposal of shifting the contractual status of the swap agreements to Nissan until Mr. Ghosn could gather the collateral was considered, under the condition that the shift would be at no cost to Nissan.
(4)  After consideration by Shinsei Bank and Nissan’s Legal, on October 31, 2008, Nissan’s Board of Directors passed a resolution giving Ohnuma, the General Manager of the Secretariat Office, the authority to sign current or future FX forward contracts for non- Japanese executive officers (including directors) at no cost for the company.
(5)  The resolution granted authority to the General Manager of the Secretariat Office to
execute transactions to sell yen and buy a foreign currency for the benefit of non-Japanese executive officers in relation to their remuneration payment. The resolution presumed that losses caused by a transaction would be attributed to the executive officer and would be at no cost to Nissan. Therefore, as Nissan passed the resolution assuming the transaction was not a conflict of interest (Article 365, Paragraph 1 and Article 356, Paragraph 1, No. 3 of the Companies Act) and Shinsei Bank had the same understanding, on the same day, Nissan, Canayany and Shinsei Bank entered into a novation agreement to transfer the swap agreements from Canayany to Nissan.
(6)  As a result of the novation agreement, Nissan took over the right and obligation to sell yen and buy dollars on the exercise date every three months in relation to Shinsei Bank; however, as stated above, it was presumed that the losses would be attributed to Mr. Ghosn and that Nissan would not bear any responsibility. In fact, when a loss of 62,580,000 yen was incurred on January 30, 2009, from purchasing dollars under swap agreement, Mr. Ghosn paid the amount and Nissan did not bear any losses. The swap agreements were created based on Mr. Ghosn’s cash flow, so the agreements were to sell yen and buy dollars in relation to Mr. Ghosn’s payment. Therefore, Mr. Ghosn had the ability to bear any losses that arose in the future, and there was no risk that Nissan would bear the losses. Furthermore, along with Nissan’s termination of its retirement allowance program in June 2007, it had been decided that Mr. Ghosn would be paid a retirement allowance, and based on the amount of said allowance, it was sufficiently guaranteed that Nissan would not bear any losses.
(7)  Unlike Canayany, Nissan did not bear an obligation to Shinsei Bank to provide required collateral according to “fair market value” under the swap agreements. Therefore, while
the “fair market value” under the swap agreements was negative “1,850,405,142 yen” at the time of the execution of the novation agreement, Nissan did not receive a demand from Shinsei Bank to provide a required amount of collateral, nor did it receive a demand to pay penalty fees because collateral could not be provided.
(8) After that, while the contractual status of the swap agreements was returned from Nissan to Canayany on February 20, 2009, following Mr. Ghosn’s procurement of collateral, Nissan suffered no “decrease in asset value” whatsoever during this time.
IV. Charged facts regarding KJC
1. Mr. Ghosn is innocent.
(1) Each of the remittances to Khaled Juffali Company (“KJC”) underwent appropriate approval procedures as compensation, including expenses, for services that KJC, which is managed by Khaled Juffali, provided to assist Nissan’s business in Saudi Arabia, so Mr. Ghosn has committed no “act in breach of his duty” (Article 960, Paragraph 1 of the Companies Act).
(2) The $14.7 million that Nissan paid KJC in total are compensation, including expenses, for services conducted by KJC to assist Nissan’s business in Saudi Arabia. Accordingly, no “financial damages” (Article 960, Paragraph 1 of the Companies Act) have been incurred by Nissan whatsoever.
(3) As Mr. Ghosn did not recognize or approve of any “financial damages” to be incurred by Nissan, no intent can be recognized either (Article 38, Paragraph 1 of the Penal Code).
(4) Each of these remittances was executed for the purpose of promoting Nissan’s interest, namely the development of Nissan’s business in Saudi Arabia, so there is no purpose of promoting “his own interest or the interest of a third party” that can be recognized either (Article 960, Paragraph 1 of the Companies Act). Both the remittances from ParkView to the securities
account under the name of Tomanaga Holding Limited and the provision of the standby letter of credit have no relation to the purpose of the remittances from Nissan to KJC.
2. Mr. Juffali is a highly regarded businessperson from Saudi Arabia and Mr. Ghosn’s trusted friend.
Mr. Juffali is a highly regarded businessperson from Saudi Arabia. His predecessors in the Juffali family formed the “Juffali Group” conglomerate in the 1970s, and the Juffali family has been managing the largest corporate enterprise in Saudi Arabia, dealing in a broad variety of businesses including manufacturing, distribution and trade. Since becoming Vice Chairman of the Juffali Group, Mr. Juffali has utilized his own experience and abilities to develop ties with companies all over the world. Mr. Juffali has managed Khaled Juffali Company (KJC) since 2004.
Mr. Juffali has been Mr. Ghosn’s trusted friend for more than twenty years. When Mr. Ghosn met with Mr. Juffali occasionally during return visits to Lebanon and when attending international conferences, etc. such as the Davos conference, Mr. Ghosn sometimes sought Mr. Juffali’s advice with respect to business in the Gulf region.
In September 2008, the collapse of Lehman Brothers led to a global financial crisis. As a result, Mr. Ghosn faced a situation in which the collateral that he had provided to Shinsei Bank became insufficient based on swap contracts. Shinsei Bank required Mr. Ghosn to either immediately provide additional collateral or cancel the contracts and pay to settle the margin calls. In order to avoid having to resign from Nissan to settle the margin calls, Mr. Ghosn asked his trusted friend Mr. Juffali for help. Mr. Juffali cooperated with the issuance of a standby letter of credit for 3 billion yen to Shinsei Bank, but that action is unrelated to the purpose of the remittances of this case.
3. Nissan, whose business in Saudi Arabia was sluggish, sought KJC’s assistance.
The Middle East region is an important market for Nissan, and it was a region that was forecast to be especially profitable within the automotive industry. More specifically, Saudi Arabia, which has shown marked economic development, was a particularly important market for Nissan in the Middle East. However, Nissan’s business results in the Middle East were faltering and had largely fallen behind other Japanese and Korean companies in the industry. In particular, sales results in Saudi Arabia were very sluggish for many years. In 1957, Nissan designated Al Hamrani United Company (AUC) as a national sales company (“NSC”) for Nissan in Saudi Arabia, and it was selling Nissan vehicles as a local dealer. However, AUC’s business performance was very bad and it regularly failed to meet its objectives for unit sales. Against that background, there were circumstances of internal divisions surrounding management rights among the Al Hamrani family that manages AUC. It was very difficult to build a relationship between the Al Hamrani family and the Japanese company Nissan, as well as its subsidiary Nissan Middle East, and there were no signs of improvement. Nissan was in a predicament because it had signed an exclusive sales distributor agreement with AUC and had no choice but to sell Nissan vehicles through AUC.
In September 2008, since before the financial crisis, Nissan considered breaking through such circumstances in Saudi Arabia. As a means of doing so, Nissan decided to seek assistance from Mr. Juffali, who had cultivated connections due to his performance and reputation in business. As a result of repeated meetings from around May 2008 between corporate officer Gilles Normand of Nissan Headquarters, Atsuo Kosaka of Nissan Middle East and Mr. Juffali, the decision was made to establish a limited liability company through joint investment by Nissan’s 100% owned subsidiary Nissan Middle East and Al Dahana FZCO, which is jointly managed by Mr. Nassar Watar, an influential businessperson in the Gulf region. Upon receiving approval from Nissan Headquarters’ Executive Committee on July 18, 2008, Nissan Gulf FZCO was established in Dubai (United Arab Emirates). Nissan Gulf’s purpose was to oversee the NSCs in four countries in the
region, namely Saudi Arabia, Abu Dhabi (United Arab Emirates), Kuwait and Bahrain, and expand Nissan’s local market share.
Nissan asked KJC to assist Nissan’s business in Saudi Arabia by utilizing its business network and knowhow. Mr. Ghosn was receiving communications from Mr. Juffali regarding overall matters, and Colin Dodge and Mr. Normand were in contact with Mr. Juffali regarding local operations in Saudi Arabia.
The development of Nissan’s business in Saudi Arabia increased in importance due to the financial crisis. The financial crisis had a substantial impact on the Japanese economy, and the automotive industry in particular, which is a key sector in Japan, was deeply affected. Exports overseas declined because of the high yen and sales fell globally. Nissan was no exception. Mr. Ghosn took every measure to save Nissan from the financial crisis, and developing business in the Middle East, which was experiencing remarkable economic growth, particularly in the market of Saudi Arabia, was part of those measures.
4. KJC took initiatives and paid expenses on Nissan’s behalf to develop Nissan’s business in Saudi Arabia for the benefit of Nissan.
Starting in the second half of 2008, for the benefit of Nissan, KJC began providing services to develop Nissan’s business in Saudi Arabia and also paid expenses for those efforts on Nissan’s behalf.
For example, relying on his business network, Mr. Juffali conducted negotiations with the Al Hamrani family, which manages AUC, and improved the relationship between AUC and Nissan. As stated above, one of the reasons that sales of Nissan vehicles were stagnant in Saudi Arabia was that a dispute over management rights had unfolded within AUC, which led to their sales efforts being neglected. Nissan was considering terminating its distributor contract with AUC by declining to renew it. However, in that case, it was expected that doing so would result in litigation risk, an
accompanying loss of brand strength, and a further decrease in sales. Mr. Juffali negotiated with the Al Hamrani family and succeeded in reaching an agreement on a business plan targeting sales volume of 50,000 units for fiscal year 2009, along with the rough contours of an interim plan targeting sales volume of 100,000 units for fiscal year 2013, five years later. Results were achieved where AUC significantly increased the sales volume of Nissan vehicles, generating a sales volume in fiscal year 2009 that greatly exceeded the target of 50,000 units. Due to AUC’s significant improvement in performance, Nissan decided to renew their exclusive distributor contract on July 31, 2009. As a result, Nissan avoided the litigation risk, etc. that was expected in the event of not renewing the contract with AUC.
Furthermore, starting in 2007 or earlier, the Saudi Arabian government solicited various automobile companies to construct automobile plants in the hopes of cultivating an alternative industry to the crude oil industry and generating domestic employment. Around April 2007, Nissan was contacted by the Saudi Arabian government regarding construction of an automobile plant. Mr. Ghosn expected an increase in demand for automobiles in the Middle East and Africa, and an increase in production volume. He thought proactively that if an automobile assembly plant were constructed as a production base in Saudi Arabia, then depending on the requirements, it could be profitable in the future. Mr. Ghosn established a unit at Nissan Headquarters and assembled experts in various fields to consider constructing such a plant from the perspectives of logistics, manufacturing, the supply chain, etc. Mr. Juffali actively assisted in the negotiations with government agencies such as the Saudi Arabian General Investment Authority (SAGIA) regarding the requirements, and assisted Nissan’s plan to construct an automobile plant. Over time, from 2008 through 2013, Nissan continued to consider a plan to construct an automobile plant. However, this plan was not ultimately realized because the requirements for sustainability and profitability were not met.
Mr. Juffali also engaged in establishing a limited liability company for Nissan in Saudi Arabia. Mr. Juffali utilized the network he had cultivated in business and actively negotiated to establish the limited liability company for Nissan. As a result, a license to set up a limited liability company owned by Nissan and KJC was obtained from SAGIA around mid-2013. Nissan Saudi Arabia (Nissan KSA) was established in November 2014, 75% owned by Nissan and 25% owned by KJC, and Nissan has been able to sell its vehicles in Saudi Arabia from that point.
5. Nissan greatly benefited from Mr. Juffali’s business expertise in Saudi Arabia.
After conducting appropriate approval procedures, Nissan paid compensation, including expenses, to KJC for services to assist the business in Saudi Arabia.
After conducting proper approval procedures, Nissan paid compensation, including expenses, to KJC for services to assist the business in Saudi Arabia. When making those payments, allocations were made from the CEO Reserve budget, which is merely a line item, and special cash or bank account for the Reserve does not exist (see Section V. 5 for details). In addition, the strict procedures necessary for allocating the CEO Reserve budget have been followed completely.
In May 2009, based on an evaluation of KJC’s contribution and performance, Nissan decided to pay $3 million as compensation, including expenses.. This proposal was approved at the Executive Committee meeting held on May 21, 2009. An application for allocating the CEO Reserve budget to make that payment (Application for Budget Adjustment) was subsequently prepared on June 1, 2009 by Gilles Normand who was in charge of the Middle East. Signatures were given by Greg Kelly, who was in charge of the Office of the CEO, and Emmanuel Delay, who was the corporate officer in charge of accounting, finance and management planning, as well as Colin Dodge, the corporate officer in charge of overseas markets in general, and then finally by Mr. Ghosn. Further, a Decision Form Concerning Execution of Remittances (Decision
Form C) was prepared, and in addition to Colin Dodge and Gilles Normand, who both had knowledge of the local operations, this was also signed by Steven Ma who is Controller of the region.
The payments for the compensation, including expenses, from 2010 to 2012 were all completely executed by going through the same procedures and were approved by either a corporate officer handling finance functions or the CFO (Chief Financial Officer), as well as Gilles Normand and/or Colin Dodge, who were in charge of managing business in the Middle East.
V. Charged facts regarding SBA
1. Mr. Ghosn is innocent.
(1)  Mr. Ghosn has committed no “aggravated breach of trust” (Article 960, Paragraph 1 of the Companies Act). Of the July 25, 2017 payment of $5,000,000, approval for the payment of $2,500,000 was granted by Mr. Saikawa, not Mr. Ghosn. Additionally, the July 30, 2018 payment of $5,000,000 was granted by Mr. Saikawa, not Mr. Ghosn. For both of these amounts, there weren’t any “payments to be obtained by [Mr. Ghosn himself].” Both of these payments were made for the benefit of Nissan. There is no basis in fact that money was transferred, directly or indirectly, from SBA to Mr. Ghosn or his family.
(2)  No “financial damage” was inflicted on Nissan (Article 960, Paragraph 1 of the Companies Act).
(3)  Since Mr. Ghosn does not recognize or acknowledge that “financial damage” was inflicted on Nissan, intent cannot be recognized (Article 38, Paragraph 1 of the Penal Code).
(4) Because the payments in this case were made for the purpose of Nissan’s interests, they cannot be recognized as made for the purpose of “[Mr. Ghosn’s] own interest or the interest of a third party” (Article 960, Paragraph 1 of the Companies Act).
By offering incentives such as sales incentives to regional dealers, automakers maintain and increase market share, so sales incentives are an essential sales strategy for increasing vehicle sales volume.
Nissan is a global company that has production and sales bases around the world. In terms of sales bases, Nissan has Regional Headquarters, which are mainly wholly owned subsidiaries, in North America, Central and South America, Africa, Asia, the Middle East, etc., and the Regional Headquarters sell Nissan automobiles to National Sales Companies (NSC), which are local dealers that form the foundation of sales in each country or region. When a Regional Headquarters receives orders for sales from an NSC, it procures the Nissan automobiles from production sites around the world and sells (exports) them to the NSC.
Needless to say, NSCs are necessary for selling Nissan automobiles around the world, and they act as the front line in competing with other companies’ brands. The NSCs’ market share, sales volume and revenue are directly connected with Nissan Headquarters’ business performance in their countries and regions. Consequently, since Nissan Headquarters provides the NSCs of each region with sales incentives, preferential treatment on the terms of payment, etc. through the local Regional Headquarters, those NSCs continue to be Nissan dealers (without switching over to Toyota or Hyundai) and they are encouraged to give their best efforts at expanding the market share and sales volume of Nissan automobiles.
Incentives such as sales incentives are not necessarily fueled by past or expected sales performance by an NSC. The level of achievement toward numerical targets is an important factor, but is not everything. Various factors are considered when determining incentives, for
example the importance of that NSC’s existence as a Nissan regional dealer, its relationship with Nissan up to that point, and strategies for expanding Nissan’s market share and sales.
The Middle Eastern Gulf region is very attractive for Japanese automakers such as Toyota and Nissan for the following reasons.
1) The quality of Japanese and Asian-made automobiles, in particular the air- conditioners, engines, etc. which are highly durable in high temperatures and harsh climates, is highly regarded in the Middle East.
2) Profitability is higher than in other regions.
3) There is great potential as a developing market. For example, Toyota’s market
penetration is tremendous, which contributes to Toyota’s overall business
performance. Nissan also has room to recover the market share that it lost in the past. Nissan’s Regional Headquarters in the Middle Eastern Gulf countries is Nissan’s wholly owned subsidiary, Nissan Middle East F.Z.E. (NMEF). The following companies are representative NSCs in the region.
Arabian Automobiles Co. (AAC) (Dubai)
Saleh Alhamad Almana Co. (Almana) (Qatar)
Suhail Bahwan Automobiles LLC (SBA) (Oman) Rasamny Younis Motor Co. S.A.L. (RYMCO) (Lebanon) Al Masood (Abu Dhabi)
Bustami & Saheb Co. (Jordan)
Arata International (part of the SBA Group) (Iraq)
3. SBA was an essential NSC in Oman and other Gulf countries for expanding market share.
Suhail Bahwan Automobiles (SBA) is an automobile dealer belonging to Suhail Bahwan
Group Holdings (SBGH), the largest conglomerate group in Oman. SBGH’s founder, Suhail Salim Bahwan Al Mukhaini, is a very well-known and respected businessman not only in Oman but also in the Middle East and other parts of the world. When he was 15 years old, he started a business by loading up a dhow sailing vessel with date fruits, spending 40 days travelling to India, purchasing rice, oil and clothing, and returning to sell them in the town of Sur. Bahwan used the money he gained as capital to open a shop selling construction materials and fishing nets. He became a distributor for Toshiba and Seiko of Japan, and subsequently expanded into various areas such as electric appliances, watches, construction, telecommunications, food products and transportation. He served as consul general of Sweden, head of the Omani chamber of commerce, etc. His eldest son Mr. Ahmed Suhail Bahwan Al Mukhaini, studied auto industry management in the U.S. and subsequently took over SBA and then afterwards he formed his family group under the name of Bahwan International Group Holdings (BIGH) which now holds the shares of SBA. During his time at the helm, Ahmed has poured substantial financial resources into all of his auto-related businesses.
SBA became a Nissan NSC in the Gulf region in 2004. SBA sold Nissan automobiles not only in Oman but also through an affiliate (Arata International Trading F.Z.C.; Arata) in Iraq, Libya, Saudi Arabia and China.
In the early 2000s, Nissan’s market share in the Gulf region began to fall, and was considerably behind Toyota and Hyundai. The Middle Eastern region, with its high rate of population growth, high young population rate and the anticipated increase of the middle class population, was a region with growth potential for auto manufacturers. From around the time of the financial crisis until today, the strategy to expand the market in the Middle Eastern region continues to be Nissan’s key issue.
In FY2004 when SBA became Nissan’s NSC, SBA purchased a little over than 2000
automobiles with sales under $33 million. From that point on, its performance improved dramatically year on year, reaching sales of more than 23,000 automobiles for $400 million in FY2008. However, during the FY09, due to the effects of the global slowdown from the financial crisis sparked by the collapse of Lehman Brothers, sales failed to reach 20,000 automobiles. Both sales volume and revenue continued to pick apace after that year, reaching over 31,500 automobiles for $1 billion in FY2018.
SBA received awards practically every year granted to outstanding NSCs that significantly increased sales results for Nissan.
4. Changes to the terms of payment: usance
The financial crisis sparked by the collapse of Lehman Brothers that occurred in Fall of 2008 negatively affected auto sales throughout the world. The effects also extended to the Middle Eastern Gulf region.
Initially, SBA paid NMEF according to letters of credit (L/C) payable at sight. Around January 2009, SBA asked Nissan to make the terms of payment more flexible to achieve the double purpose of mitigating the effects of the crisis and supporting an aggressive sales strategy. Changes to the terms of payment cannot be made at the sole discretion of the Regional Headquarters. It needs to be approved by numerous people on various levels of responsibility and governance in accordance with Nissan’s strict internal procedures. In other words, the changes to the terms of payment will be approved when (1) the person in charge of sales at NMEF makes a proposal, (2) gets approval from the person in charge of NMEF Finance Department, (3) the head of said Department, (4) and from the President (MD) of NMEF, (5) is then reviewed by the department in charge of sales at Nissan Headquarters, (6) and subsequently by the Accounting Department, (7) and lastly, obtains final approval from either the Global Treasurer or the CFO at Headquarters. It is not possible for the CEO to make
changes to the terms of payment at his sole discretion.
Procedures to review and approve were conducted from January to February 2009 by NMEF and Nissan Headquarters. Over 10 people, including NMEF President Toru Hasegawa, Accounting Department Deputy General Manager Takahiko Ikushima at Nissan Headquarters and Nissan Headquarters CFO Alain Dassas, participated in the review and approval process. Starting from the first half of FY2009, a change of the terms of payment were approved so that the payment deadline would be 210 days after issuance of an L/C (the so called “usance”) and so that 3.0% interest would be paid during that period for yen- denominated L/C and 5.0% interest for dollar-denominated L/C.
After that, SBA’s terms of payment continued to change. All of the changes were made after a strict review and approval process, and implemented after NMEF, through the President, proposed them to Nissan Headquarters and after they were approved by the CFO and the Accounting Department General Manager at Headquarters by following the approval procedures according to the internal company rules. Mr. Ghosn has never arbitrarily eased SBA’s payment terms. He has never instructed or approved a decision to ease SBA’s payment terms beyond the solid corporate governance processes involving the above mentioned Nissan officers.
5. Payment of sales incentives to SBA from the CEO Reserve
The CEO Reserve is not “money that can be freely used by the CEO.” There is no special cash or savings account. The CEO Reserve is a line item in the yearly Nissan global budget which serves to support various types of Nissan expenditure and investments during a given year. The CEO Reserve is not a system set up only for paying sales incentives. It is normally used for unexpected expenses or investments that occur during the fiscal year. For example, it is used for the following purposes.
  •  Payments to hire talented executives
  • Emergency measures against unexpected product defects
  • Ad hoc measures to make synergistic or organizational improvements, engage in mergers, etc.
All payments and/or allocations from the CEO Reserve are duly recorded in the financial statements under the corresponding field which reflects the nature and type of payment, and is naturally subject to internal audit. In order to disburse company funds from the CEO Reserve, it is necessary to carry out special procedures for application/approval/final decision.
In the case of allocation and payment of sales incentives, first, the proposer must prepare a proposal containing the reasons why the disbursement is necessary, the date and amount of disbursement, etc., and then must present the proposal in front of the appropriate members of the Executive Committee (EC). The application/approval documents must be filled out with all necessary information, and the CEO, who is the decision maker of disbursements, ultimately approves after consent is received from Executive Committee members, the CFO and others. After such approval is granted, application/approval documents to actually pay the funds are prepared, and payments will be made after final approval from the vice president in charge (CVP or SVP). Whether it is the “CEO Reserve” or something else, and whether it is at Nissan Headquarters or Regional Headquarters, it is not possible for the CEO to disburse company funds at his own discretion.
From June 2012 to July 2018, sales incentives were paid to SBA by NMEF from the CEO Reserve expense item a total of ten times.
June 10, 2012: $3 million
October 18, 2012: $2 million
June 20, 2013: $4.5 million
July 2, 2014: $2.5 million
March 11, 2015: $2 million
June 17, 2015: $3 million
December 30, 2015: $2 million
January 9, 2017: $3 million
July 25, 2017: $5 million
July 30, 2018: $5 million
These payments were generally determined and executed in the following way. In the beginning of each year, NMEF and SBA would check the sales results from the previous fiscal year and whether the numerical targets established in the previous year were achieved. They then would establish the numerical targets to be achieved for the current year and the conditions for payment of the incentive.
The General Manager of the Middle East at Nissan Headquarters (CVP or SVP) prepared an approval application for the use of the CEO Reserve (Application for Budget Usage). Final approval was received from the CEO after consent was obtained from the CFO, related EC members, the executive officer in charge of the office of the CEO and others.
After the approval is granted, the General Manager of the Middle East at Nissan Headquarters prepares a document to approve the disbursement (Decision Form C), and after review by the General Manager of the Accounting Department, the General Manager of the Middle East (CVP or SVP) makes the final decision.
Based on the approval process and final decision within Nissan, NMEF and SBA would enter into a Memorandum of Mutual Understanding (MoU) between them, and NMEF’s President and SBA’s President or Chairman would sign the MoU. NMEF would make
payments to SBA based on Nissan’s decision and following the signature of the MoU.
Of the July 25, 2017, payment of $5,000,000, which is the basis of the charge in this case, approval for the payment of $2,500,000 was granted in March 2017 when Mr. Ghosn was still CEO. However, the payment of the remaining $2,500,000 was approved by Mr. Saikawa, who was CEO at the time. In addition, Mr. Saikawa also approved the July 30, 2018 payment of $5,000,000.
From FY2011, which is the fiscal year before 2012 when these incentive payments started, to FY2017, SBA’s automobile purchases averaged 35,000 vehicles per fiscal year with a yearly average of procurement value of $807,000,000. The ratio of the average amount of yearly cash incentives ($4.28 million) to the yearly procurement value amount ($807,000,000) was 0.53%.
In this way, payments of the sales incentives were determined and executed following stringent internal company procedures. The amounts were also appropriate and reasonable as management strategy for Nissan to maintain and expand its market share in the Middle Eastern Gulf region.


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Some comments (2006) to Chris Mooney about anti-Malthusian Ron Bailey on doomsayers, extinctions and DDT

January 6th, 2015 No comments
Here are some comments that I sent to Chris C. Mooney in response to his June 2, 2006 blogpost, “Some Ron Bailey Writings.”

Chris, in addition to the comments I’ve already given, let me note the following:

1. On Club of Rome and the Malthusian issue generally, the doomsayers were right to perceive problems that are still with us, but they failed to understand how market supply and demand work to call forth new supplies and technologies. Now we use sand [glass fiber] instead of copper for our telecommunications. They were very wrong on commodity prices, but what were the consequences? We adapted, so it can hardly be said to be one of the “worst” abuses of science (in any case the projections were not an abuse of science, but mistaken modelling).

In the big picture, Club of Rome was exactly right about a point on which we are still struggling – like any other species, humanity is a part of its environment and we must be concerned about our impact on the environment. Without the proper feedback mechanisms – which are provided now soleyl by disease, war and properly functioning markets – we will expand up to the Earth’s carrying capacity, overshoot and crash, as we have from time to time in the past, as Jared Diamond points out (but Diamond doesn’t understand environmental problems as market-failure problems either).

Are all the feedback mechanisms working properly worldwide? There is still lots of misery and starvation in the third world, and where markets don’t work we have internecine slaughter like in Rwanda and constant instability in Haiti. Global ecosystems and environmental services are still at severe risk, and regional resources like Asian and South American tropical forests, tropical reefs and oceanic fisheries, and wild species everrywhere, precisely for reasons that Ron Bailey understands well – because markets do not work well where property rights – private or communal – are not clearly defined or not effectively enforced.

On this, I recommend that you take a look at Ron’s piece last year on the problems and solutions for New England fisheries: How to Save New England’s Fishing Villages – If only the fishers will allow it. The solution? Creation of private rights that allow a market to function; here, “Individual transferable quotas” (ITQs) that are exactly the same as taken for SO2 trading in California under the Clean Air Act and the GHG emissions permits now trading under Kyoto. These tragedy of the commons issues persist globally and must be addressed, unless we wish to see ineffectively owned resources destroyed.

It’s also worth pointing out that the Malthusians have been wrong only becuase our technological ingenuity has enabled us to wrest more and more from nature. Nature may be getting a break in the West, but it’s due not only to fossil fuels (and a AGW cost that is not being paid) but also because we’re sourcing more and more from the developing world – the oceans are being strip-mined, the Amazon being converted to soybeans and the Asian tropics to palm plantations, and the second/third worlds are definitely converting forests to food. Environmental services are not costed into the moder economy.

I also recommend you look at the Business Rountable’s policy paper on how to help the developing world improve their economies and prepare for climate change – in particular recommendations 2 (kleptocracy – “public” resources are not protected but exploited to line the pockets of elites) and 5 (lack of effective propertty rights) specifically point out that these institutional failures lie at the core of the third world’s problems.

2. I think there is more recent information about one in seven of all bird species being threatened. Whatever the rate is, it is huge, and just like fisheries, it’s entirely due to the lack of effective property rights. The bright spots are where landowners have figured out that they can get a good income from using and protecting wild resources. We’re still fighting about whales, even though we have obvious solutions such as ITQs being applied to other fisheries in NZ and AK.

Ron can argue with you about the numbers of species, but he really can’t disagree that the loss of this genetic information is a disgrace many worse than the burning of the library of Alexandria, and certainly is a result of failed markets that should be fixed.

Since libertarians like Ron and others on the right actually know all about the problems of market failure, where is the big effort being made to fix these problems?

3. On DDT, I imagine you know that Tim Lambert at Deltoid already has all of the answers handy.

4. This isn’t one of your questions, but I think it is fair to note that the failures of the left relating to science have really been failures to understand the institutional reasons for problems and so failures to propose the right solutions. Those on the left who have been saying that we need to change human nature or abandon capitalism have been saying so because they simply don’t know otherwise how to “fix” capitalism’s flaws.

But as I imagine you know, the misuse of science the right, on the other hand, has been entirely intentional, cynical and venal, and designed to allow favored interests (rent-seekers) to continue to pay cheap for dear public resources (including using the atmosphere as a GHG dump), for the financial and partisan benefit of those running the government. See John Baden, a grandfather of libertarian, free-market environmentalism for his take on the corrupt Republicans:

Good luck!



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I’m not focussed on abolishing the state as an objective because . . . it’s turtles all the way down anyway

October 30th, 2014 No comments

I’m not focussed on abolishing the state as an objective because:

(1) it is a distraction from other ways to recreate/revitalize community and “Zomia”;

(2) I see it as impractical in any event — while splitting up states and decentralizing are real options, any stateless/ungoverned areas that may arise are soon claimed by states; and

(3) I’m afraid it’s turtles all the way down anyway, in terms of brigands, great bands of brigands, and roving corporate bandits:

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Interesting new research shows that THE key to disaster recovery is the strength of the local community ('social capital'), NOT Government action

June 12th, 2011 No comments

Daniel P. Aldrich is an up-and-coming political scientist who got interested in disaster recovery when New Orleans was hit by Hurricane Katrina a few months after he had moved there with his family.

He has also spent quite a bit of time living and studying in Japan; I ran across him recently in connection with my reading and blogging on post-earthquake, post-tsunami and post-Fukushima nuclear power plant disaster Japan; he’s mentioned prominently in the NYT article excerpted in my preceding post.

According to his bio at Purdue University, Aldrich:

received his Ph.D. and M.A. in political science from Harvard University, an M.A. from the University of California at Berkeley, and his B.A. from the University of North Carolina at Chapel Hill. Daniel has focused on the ways in which state agencies interact with contentious civil society over the siting of controversial facilities such as nuclear power plants, airports, and dams. His current research investigates how neighborhoods and communities recover from disasters. He has published a number of peer-reviewed articles along with research for general audiences. His research has been funded by grants from the Abe Foundation, IIE Fulbright Foundation, the National Science Foundation, the Reischauer Institute at Harvard University, the Weatherhead Center for International Affairs, and Harvard’s Center for European Studies. He has been a visiting scholar at the Japanese Ministry of Finance, the Institute for Social Science at Tokyo University, Harvard University, the Tata Institute for Social Science in Mumbai, the Institut d’etudes politiques de Paris (Sciences Po), and the East West Center in Honolulu, Hawaii. He has spent more than three years conducting fieldwork in Japan, India and France.

His research and writing on disasters and resilience is very interesting and speaks to the importance of strong communities of the type that governments and their corprate agents frequently do their best to seek to erode. Here is his own description and set of links to that work:

Externalities of Strong Social Capital: Post Tsunami Recovery in Southeast Asia forthcoming in Journal of Civil Society


Much research has implied that social capital functions as an unqualified “public good,” enhancing governance, economic performance, and quality of life (Coleman 1988; Cohen and Arato 1992; Putnam 1993; Cohen and Rogers 1995). Scholars of disaster (Nakagawa and Shaw 2004; Adger et al. 2005; Dynes 2005; Tatsuki 2008) have extended this concept to posit that social capital provides nonexcludable benefits to whole communities after major crises. Using qualitative methods to analyze data from villages in Tamil Nadu, India following the 2004 Indian Ocean tsunami, this paper demonstrates that high levels of social capital simultaneously provided strong benefits and equally strong negative externalities, especially to those already on the periphery of society. In these villages, high levels of social capital reduced barriers to collective action for members of the uur panchayats (hamlet councils) and parish councils, speeding up their recovery and connecting them to aid organizations, but at the same time reinforced obstacles to recovery for women, Dalits, migrants, and Muslims. These localized findings have important implications for academic studies of social capital and policy formation for future disasters and recovery schemes.

Social Science Perspectives on Disasters in Perspectives on Politics

In this extended review, I discuss three recent books on disaster: Governing after Crisis: The Politics of Investigation, Accountability, and Learning edited by Arjen Boin, Allan McConnell, and Paul ‘T Hart, Learning from Catastrophes: Strategies for Reaction and Response , edited by Howard Kunreuther and Micheel Useem, and The Next Catastrophe: Reducing Our Vulnerabilities to Natural, Industrial, and Terrorist Disasters by Charles Perrow. All three books invoke the market and state as core forces at work in mitigation and disaster recovery, overlooking the critical role of social capital.

Separate and Unequal: Post-Tsunami Aid Distribution in Southern India published in Social Science Quarterly

Objective. Disasters are a regular occurrence throughout the world. Whether all eligible victims of a catastrophe receive similar amounts of aid from governments and donors following a crisis remains an open question. Methods. I use data on 62 similarly damaged inland fishing villages in five districts of southeastern India following the 2004 Indian Ocean tsunami to measure the causal influence of caste, location, wealth, and bridging social capital on the receipt of aid. Using two-limit tobit and negative binomial models, I investigate the factors that influence the time spent in refugee camps, receipt of an initial aid packet, and receipt of 4,000 rupees. Results. Caste, family status, and wealth proved to be powerful predictors of beneficiaries and nonbeneficiaries during the aid process. Conclusion. While many scholars and practitioners envision aid distribution as primarily a technocratic process, this research shows that discrimination and financial resources strongly affect the flow of disaster aid.

The Power of People: Social Capital’s Role in Recovery from the 1995 Kobe Earthquake forthcoming in Natural Hazards

Despite the regularity of disasters, social science has only begun to generate replicable knowledge about the factors which facilitate post-crisis recovery. Building on the broad variation in recovery rates within disaster-affected cities, I investigate the ability of Kobe’s nine wards to repopulate after the 1995 Kobe earthquake in Japan. This article uses case studies of neighborhoods in Kobe alongside new time-series, cross-sectional data set to test five variables thought to influence recovery along with the relatively untested factor of social capital. Controlling for damage, population density, economic conditions, inequality and other variables thought important in past research, social capital proves to be the strongest and most robust predictor of population recovery after catastrophe. This has important implications both for public policies focused on reconstruction and for social science more generally.

Fixing Recovery: Social Capital in Post-Crisis Resilience in The Journal of Homeland Security June 2010

Disasters remain among the most critical events which impact residents and their neighborhoods; they have killed far more individuals than high salience issues such as terrorism. Unfortunately, disaster recovery programs run by the United States and foreign governments have not been updated to reflect a new understanding of the essential nature of social capital and networks. I call for a re-orientation of disaster preparedness and recovery programs at all levels away from the standard fixes focused on physical infrastructure towards ones targeting social infrastructure. The reservoirs of social capital and the trust (or lack thereof) between citizens in disaster-affected communities can help us understand why some neighborhoods in cities like Kobe, Japan, Tamil Nadu, India, and New Orleans, Louisiana displayed resilience while others stagnated. Social capital – the engine for recovery – can be deepened both through local initiatives and interventions from foreign agencies.

Aldrich Presentation on 25 March 2010 BUILDING RESILIENCE conference

Despite the clear and present danger from disasters, social scientists have yet to provide strong, quantitative evidence about which factors influence the pace of recovery. Using data from four megadisasters over the 20th and 21st century – the 1923 Tokyo earthquake, the 1995 Kobe earthquake, the 2004 Indian Ocean tsunami, and the 2005 Hurricane Katrina – Aldrich argues that social infrastructure is the critical factor in recovery.

The Crucial Role of Civil Society in Disaster Recovery and Japan’s Preparedness for Emergencies in Japan aktuell 3/28

This article is concerned with the empirical puzzle of why certain neighborhoods and localities recover more quickly than others following disasters. It illuminates four mainstream theories of rehabilitation and resilience, and then investigates a neglected factor, namely the role of social networks and civil society. Initial analyses underscore the important role of trust and connectivity among local residents in the process of rebuilding. After examining the role of civil society in Japan’s preparedness for emergencies, the article concludes with some policy recommendations for governments and nongovernmental actors involved in disaster relief.

This paper, entitled the The Need for Comparative Research, was prepared for a conference at the Jamsetji Tata Centre for Disaster Management in February 2008, and sets out some initial ideas which have motivated this project.

Some of Aldrich’s newspaper articles are linked here.

I expect I’ll be commenting further on his work.

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Japan's nuclear power subsidies to rural areas a case study in sick dynamics: how governments eviscerate local economies and addict them to what destroys them

June 12th, 2011 No comments

We can see the same phenomenon in extractive economies wherever governments own the resources, but locals own the risks – as in the Gulf of Mexico/BP (as I noted in a number of posts) accident, Nigeria, Ecuador/Texaco, etc.

We can also see this more generally with crony, corporation-based capitalism.

Japan’s version is more complicated and seductive: the locals get paid off – at the expense of electric power ratepayers who are subject to a government-supported monopoly – in a way that encourages them to abandon their own livelihoods and further dependent on handouts.

Below are excerpts from a May 31  article at the New York Times:  In Japan, a Culture That Promotes Nuclear Dependency


When the Shimane nuclear plant was first proposed here more than 40 years ago, this rural port town put up such fierce resistance that the plant’s would-be operator, Chugoku Electric, almost scrapped the project. Angry fishermen vowed to defend areas where they had fished and harvested seaweed for generations.

Two decades later, when Chugoku Electric was considering whether to expand the plant with a third reactor, Kashima once again swung into action: this time, to rally in favor. Prodded by the local fishing cooperative, the town assembly voted 15 to 2 to make a public appeal for construction of the $4 billion reactor. …

As Kashima’s story suggests, Tokyo has been able to essentially buy the support, or at least the silent acquiescence, of communities by showering them with generous subsidies, payouts and jobs. In 2009 alone, Tokyo gave $1.15 billion for public works projects to communities that have electric plants, according to the Ministry of Economy, Trade and Industry. Experts say the majority of that money goes to communities near nuclear plants.

And that is just the tip of the iceberg, experts say, as the communities also receive a host of subsidies, property and income tax revenues, compensation to individuals and even “anonymous” donations to local treasuries that are widely believed to come from plant operators. …

In a process that critics have likened to drug addiction, the flow of easy money and higher-paying jobs quickly replaces the communities’ original economic basis, usually farming or fishing.

Nor did planners offer alternatives to public works projects like nuclear plants. Keeping the spending spigots open became the only way to maintain newly elevated living standards.

… Towns become enmeshed in the same circle — which includes politicians, bureaucrats, judges and nuclear industry executives — that has relentlessly promoted the expansion of nuclear power over safety concerns. …

“This structure of dependency makes it impossible for communities to speak out against the plants or nuclear power,” said Shuji Shimizu, a professor of public finance at Fukushima University.  …

Much of this flow of cash was the product of the Three Power Source Development Laws, a sophisticated system of government subsidies created in 1974 by Kakuei Tanaka, the powerful prime minister who shaped Japan’s nuclear power landscape and used big public works projects to build postwar Japan’s most formidable political machine.

The law required all Japanese power consumers to pay, as part of their utility bills, a tax that was funneled to communities with nuclear plants. …

Political experts say the subsidies encourage not only acceptance of a plant but also, over time, its expansion. That is because subsidies are designed to peak soon after a plant or reactor becomes operational, and then decline.

“In many cases, what you’ll see is that a town that was depopulating and had very little tax base gets a tremendous insurge of money,” said Daniel P. Aldrich, a political scientist at Purdue University who has studied the laws.

As the subsidies continue to decline over the lifetime of a reactor, communities come under pressure to accept the construction of new ones, Mr. Aldrich said. “The local community gets used to the spending they got for the first reactor — and the second, third, fourth, and fifth reactors help them keep up,” he added.

Critics point to the case of Futaba, the town that includes Fukushima Daiichi’s No. 5 and No. 6 reactors, which began operating in 1978 and 1979, respectively.

According to Professor Shimizu of Fukushima University, Fukushima Daiichi and the nearby Fukushima Daini plants directly or indirectly employed some 11,000 people in communities that include Futaba — or about one person in every two households. Since 1974, communities in Fukushima Prefecture have received about $3.3 billion in subsidies for its electrical plants, most of it for the two nuclear power facilities, Mr. Shimizu said.

Despite these huge subsidies, most given in the 1970s, Futaba recently began to experience budget problems. As they did in Kashima, the subsidies dwindled along with other revenues related to the nuclear plant, including property taxes. By 2007, Futaba was one of the most fiscally troubled towns in Japan and nearly went bankrupt. Town officials blamed the upkeep costs of the public facilities built in the early days of flush subsidies and poor management stemming from the belief that the subsidies would remain generous.

Eisaku Sato, who served as the governor of Fukushima Prefecture from 1988 to 2006 and became a critic of the nuclear industry, said that 30 years after its first reactor started operating, the town of Futaba could no longer pay its mayor’s salary.

“With a nuclear reactor, in one generation, or about 30 years, it’s possible that you’ll become a community that won’t be able to survive,” Mr. Sato said.

Futaba’s solution to its fiscal crisis was to ask the government and Tokyo Electric, Fukushima Daiichi’s operator, to build two new reactors, which would have eventually increased the number of reactors at Fukushima Daiichi to eight. The request immediately earned Futaba new subsidies.

“Putting aside whether ‘drugs’ is the right expression,” Mr. Sato said, “if you take them one time, you’ll definitely want to take them again.”

Eiji Nakamura, the failed candidate for mayor of Kashima, said the town came to rely on the constant flow of subsidies for political as well as economic reasons. He said the prefectural and town leaders used the jobs and money from public works to secure the support of key voting blocs like the construction industry and the fishing cooperative, to which about a third of the town’s working population belongs.

“They call it a nuclear power plant, but it should actually be called a political power plant,” Mr. Nakamura joked.


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Are ‘enviros’ evil,or trying to protect property + reassert control over behemoths? New Zealand Navy + Petrobras vs. Maori fishermen

April 27th, 2011 No comments

A quick show of hands:

  • How many of you think that the recent protests by New Zealand “greens” and Maori fishermen against Government-licensed oil exploration activities by PetroBras is evidence of a blind envirofascist hatred of mankind?
  • How many of you cheer on the “capitalist” exploration and development of government-owned resources by big and state-entanged corporations, over the quaint claims to “fishing rights” by locals?
  • How many of you think that PetroBras and its shareholders are the real victims of these protests?
  • How many think it’s a sign of how government “ownership” of public resources leads to zero-sum politicization of decisions, and of decisions that are tilted toward activities that provide revenues to government, while shifting risks to local communities and individuals?
  • Does anybody see any parallels with BP and the Gulf?  With the crony capitalism supporting Tokyo Electric, the operator of the Fukushima nuclear plants?

I posted a few tweets on this topic, which I copy below in chronological order:


NZ Navy intervention in oil protest “disgusting” – Maori MPs |     

Maori Sovereignty? “Maori feel the pollution risk to the water+fish stocks is too great”   

Maori skipper detained by Navy warship for defending ancestral fishing waters from Oil Drilling  

Maori fisherman: “We are defending tribal waters+our rights from reckless Govt policies”   

“opening up natl parks+our coastline to transnationl corps shows contempt+will face fierce+sustained local resistance”

Petrobras protest+Maritime Rules  |clear frm+ tht Gov ‘ownership’ leads to poor risk mgt+theft frm communities

“Gov has awakened some sort of taniwha.We’re all virgins at doing this.We never fight”   

“April 11: NZ Navy ships+Air Force planes begin monitoring the protest along with police”   

“after the licence was given-in what way is that consultation? It isn’t, not even close”    

Te Karere Ipurangi » Blog Archive » Oil surveys damage sea creatures organs – ECO    

MP says it is a disgrace…wrong for NZ citizen to be threatened by Defense for opposing a deal btwn gov+foreign oil co

NZ Gov happy w discretion to act unilaterally 2increase Gov revenues+to ignore locals  

In NZ as in ,locals trying to exercise community crtl treated as ‘terrorists’    

Rikirangi Gage to  “We are defending tribal waters+our rights frm reckless Gov policies”  

AUDIO:Rikirangi Gage of te Whānau-ā-Apanui vessel radios captain of  oil survey ship  


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Ayn Rand Center promises to have fun with man-hating enviros for Earth Day, so for fun I sent them a note

April 13th, 2011 No comments

A little birdy Tweet by the Ayn Rand Center for Corporate Individual Rights told me that the ARCs Voices for Rent-Seekers Reason blog is “Gearing up for Earth Day”, so of course I had to go take a look.

Here’s some of what I found:

As Earth Day (April 22) approaches, the Ayn Rand Center wants to help you understand the destructive campaign environmentalists have pursued for decades against energy production.

… [It is] clear that environmentalists are not so concerned about carbon emissions—they fight against every form of practical, cheap energy regardless of whether it emits CO2 (like fossil fuels) or not (like nuclear and hydro).

As ARC fellow Dr. Keith Lockitch explains …


the basic moral premise at the root of environmentalism is the premise that nature is something to be left alone—to be preserved untouched by human activity.

… This moral animus against human “intrusion” upon nature creates a basic conflict between the goals of the environmentalist movement and the needs of human life.


The blog post ends with a promise that (emphasis added)

on Earth Day, which is on Friday, April 22, we will be hosting a live Q&A session from our headquarters in Irvine, CA, where resident fellows Keith Lockitch and Alex Epstein will answer any questions you have about Earth Day, environmentalism, the recent nuclear scare in Japan, and related issues.

Besides some inaugural encounters at Mises Daily and the Mises Blog with Objectivist Dr. George Reisman,  readers might like to note that I previously commented on some of Keith Lockitch’s work relating to aid and development.

It certainly should not surprise my regular readers for me to note that I find the gist of the ARC post to be largely irrelevant, and productive only in the sense of offering a self-deceptive defense of a profoundly corrupted and statist ‘free market’.  Citizens of all stripes have every right to want to fight with others over:

  • how valuable government-owned resources (public lands, lakes and waters and marine resources) will be used or protected (as no private transactions to otherwise express preferences are possible);
  • levels of air, land and water pollution that governments will license companies to emit (rather than enforcing rights to prevent trespassing by others to person and property);
  • what energy sources that ‘the government-licensed and -regulated companies we call ‘pubilc utiities’ will invest in (at guaranteed rates) and what conservation measures they will embark on (as preferences can not be expressed via free transactions in competitive markets) – including nuclear power; and
  • what risks to the public at large (and what political activities) we wiill allow those massive and politically powerful risk-shifting and commons-privatizing machines we call corporations.

While I strive for an optimism that self-described principled libertarians will aim for a constructive engagement with people who are understandly dissatisfied with a system profoundly skewed by government, sometime my cynicism gets the better of me.

I already regret the following note that I sent via the comment form to the ARC bloggers, but hey, who knows?

Sadly, it looks like far from a ‘principled’ examination of the very negative roles that government plays in the destruction of resources and the other environmental and human rights issues that concern environmentalists, ARC wants to attack motives.

Examine the role of govenment owership of resources in destruction of the Gulf of Mexico, in overfishing and in fostering political battles for control of use of ‘public lands’? Doesn’t seem ARC is interested.

Examine the role of government in licensing polluting coal plants, stripping govt-owned lands for coal, owning TVA and others which have large fly-ash pollution, and licensing mountain-top remval practices that destroy the rivers shared by others? Will ARC sympathize and point to government refusal to protect private property (thus leading to political battles over regulations), or simply bash enviros?

Will ARC examine the negative role of government in granting monopolies to utility companies, thereby leading to wasteful pricing and lack of choice -as well as costly crony capitalism in the case of nuclear power, which gets rate guarantees and liability waivers?

Will ARC examine the role played by government in creating corporations in the first place, in a form that embeds moral hazard and exacerbates ‘agency problems’, by legislatively telling shareholders they have no liability for the damages the legal fiction they own might cause to others? Will  ARC even notice how abuses arising from the corporate form have given rise to the modern, corrupt regulatory state?

I’m on pins and needles, just waiting to see how principled and productive ARC is going to be!

By the way, I had some comments for Keith a couple of years ago: Not #Climate Change Welfare, But Capitalism and Free Markets? A few thoughts: TT’s Lost in Tokyo #tcot #p2

I AM hoping for productive comments that address the role of government (and of the commons-destroying corporations they’ve created) rather than the motives of those nasty ‘capitalism’-hating enviros.



“The first principle is that you must not fool yourself – and you are the easiest person to fool.”
Richard Feynman

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See how mercilessly Japan has been physically shaken by the quakes

March 30th, 2011 No comments

This link plays a visualization of the size, location and depth of the quakes that we have been feeling in Japan.

Since March 11. the day of The Big One, we’ve had a phenomenal 850 quakes (as of March 30, Japan time), virtually all of 4.5 magnitude and greater (roughly half between 4.5 and 5.0, and half 5.0 and LARGER)!

The parameters can be adjusted so you can speed up or it slow down, and adjust the period of time and the magnitude of earthquakes shown:

You can zoom into the map with your cursor; the greatest tsunami hit all of the Tohoku coast, with horrific damage from monstrous tsunamis (three waves) funnelled into the narrow bays containing old fishing towns and once rich with abalone, scallop and seaweed farms. University researchers have discovered that in one port the incoming waves were as high as 30 meters or 97 FEET high!  (That’s up to the middle of the top floor of a 10-story building.)

The damaged TEPCO nuclear reactors are along the Fukushima coast south of Sendai and north of Mito – and the physical damage and difficulties there are of course compounded by the ongoing quakes.

The link at the top of the page takes you to a “Daily Energy Release chart”, which show that the number of quakes has tailed off – though we are still getting around 15 quakes a day – with the strongest daily quake being about 6.0.

It is feared that 30,000 people lost their lives in these towns, which have been almost completely destroyed.

An official “sonification” of the first two days of quakes is below:



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Mises The Enviro on BP (and ConocoPhillips)

August 19th, 2010 No comments

I just ran across an old post quoting Mises, and some of it seemed quite relevant to my posts on BP (including my post yesterday regading a statement by the CEO of ConocoPhillips that they would not drill in the Gulf of Mexico if Congress eliminated statutory liaibility limits for pollution), particularly with regard to ownership by government, lack of ownership  by BP, and the absence of any rights in favor of fishermen or other non-petroleum resource users.

Here’s the quote (emphasis added):

Property rights as they are circumscribed by laws and protected by courts and the police, are the outgrowth of an age-long evolution.The legal concepts of property do not fully take account of the social function of private property. There are certain inadequacies and incongruities which are reflected in the determination of the market phenomena.

Carried through consistently, the right of property would entitle the proprietor to claim all the advantages which the good’s employment may generate on the one hand and would burden him with all the disadvantages resulting from its employment on the other hand. Then the proprietor alone would be fully responsible for the outcome. In dealing with his property he would take into account all the expected results of his action, those considered favorable as well as those considered unfavorable. But if some of the consequences of his action are outside of the sphere of the benefits he is entitled to reap and of the drawbacks that are put to his debit, he will not bother in his planning about all the effects of his action. He will disregard those benefits which do not increase his own satisfaction and those costs which do not burden him. His conduct will deviate from the line which it would have followed if the laws were better adjusted to the economic objectives of private ownership. He will embark upon certain projects only because the laws release him from responsibility for some of the costs incurred. He will abstain from other projects merely because the laws prevent him from harvesting all the advantages derivable.

The laws concerning liability and indemnification for damages caused were and still are in some respects deficient. By and large the principle is accepted that everybody is liable to damages which his actions have inflicted upon other people. But there were loopholes left which the legislators were slow to fill. In some cases this tardiness was intentional because the imperfections agreed with the plans of the authorities. When in the past in many countries the owners of factories and railroads were not held liable for the damages which the conduct of their enterprises inflicted on the property and health of neighbors, patrons, employees, and other people through smoke, soot, noise, water pollution, and accidents caused by defective or inappropriate equipment, the idea was that one should not undermine the progress of industrialization and the development of transportation facilities. The same doctrines which prompted and still are prompting many governments to encourage investment in factories and railroads through subsidies, tax exemption, tariffs, and cheap credit were at work in the emergence of a legal state of affairs in which the liability of such enterprises was either formally or practically abated.”

Whether the proprietor’s relief from responsibility for some of the disadvantages resulting from his conduct of affairs is the outcome of a deliberate policy on the part of governments and legislators or whether it is an unintentional effect of the traditional working of laws, it is at any rate a datum which the actors must take into account. They are faced with the problem of external costs. Then some people choose certain modes of want-satisfaction merely on account of the fact that a part of the costs incurred are debited not to them but to other people.

The extreme instance is provided by the case of no-man’s property referred to above. If land is not owned by anybody, although legal formalism may call it public property, it is utilized without any regard to the disadvantages resulting. Those who are in a position to appropriate to themselves the returns–lumber and game of the forests, fish of the water areas, and mineral deposits of the subsoil–do not bother about the later effects of their mode of exploitation. For them the erosion of the soil, the depletion of the exhaustible resources and other impairments of the future utilization are external costs not entering into their calculation of input and output. They cut down the trees without any regard for fresh shoots or reforestation. In hunting and fishing they do not shrink from methods preventing the repopulation of the hunting and fishing grounds. In the early days of human civilization, when soil of a quality not inferior to that of the utilized pieces was still abundant, people did not find any fault with such predatory methods. When their effects appeared in a decrease in the net returns, the ploughman abandoned his farm and moved to another place. It was only when a country was more densely settled and unoccupied first class land was no longer available for appropriation, that people began to consider such predatory methods wasteful. At that time they consolidated the institution of private property in land. They started with arable land and then, step by step, included pastures, forests, and fisheries. The newly settled colonial countries overseas, especially the vast spaces of the United States, whose marvelous agricultural potentialities were almost untouched when the first colonists from Europe arrived, passed through the same stages. Until the last decades of the nineteenth century there was always a geographic zone open to newcomers–the frontier. Neither the existence of the frontier nor its passing was peculiar to America. What characterizes American conditions is the fact that at the time the frontier disappeared ideological and institutional factors impeded the adjustment of the methods of land utilization to the change in the data. …

It is true that where a considerable part of the costs incurred are external costs from the point of view of the acting individuals or firms, the economic calculation established by them is manifestly defective and their results deceptive. But this is not the outcome of alleged deficiencies inherent in the system of private ownership of the means of production. It is on the contrary a consequence of loopholes left in this system. It could be removed by a reform of the laws concerning liability for damages inflicted and by rescinding the institutional barriers preventing the full operation of private ownership.



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