Wider still and wider

JUST two months ago, David Cameron was a prime minister in his pomp: triumphant in a referendum that rejected voting reform and magisterially untroubled by his Labour opponent, Ed Miliband. On July 18th he was asked by a journalist whether he would consider resigning. For all that British public life is being ravaged by allegations of voice-mail-hacking and police-bribing at the News of the World, his hiring in 2007 of Andy Coulson, a former editor of the tabloid who was arrested over those activities earlier this month, is likely to prove foolish rather than fatal. That the question was even raised, however, is a mark of how the scandal has burgeoned in recent weeks.

After a fortnight in which Mr Miliband made the running, Mr Cameron fought back strongly in the House of Commons on July 20th. As well as announcing the details of a forthcoming inquiry into hacking, the police and the media, he said he would apologise if it turned out that Mr Coulson had lied when he told him, Parliament and others that he had not known of the dark practices taking place under his editorship. Mr Cameron was also persuasive in defending the decision of his chief of staff, Ed Llewellyn, to ask the Metropolitan Police not to inform the prime minister of details of its hacking investigation last year.

The Met, for its part, is undergoing as much upheaval (see article) as News International (NI), which owned the now-defunct newspaper. Scotland Yard is accused of, at best, sloppiness in not investigating the hacking scandal more thoroughly when it first broke in 2005. On July 17th Sir Paul Stephenson resigned as the commissioner of the Met after revelations of the close links between Scotland Yard and NI: in particular the fact that Neil Wallis, a former executive editor of the News of the World, served the Met as a part-time media adviser in 2009 and 2010. (Mr Wallis, who was arrested in connection with phone-hacking on July 14th, also provided unpaid and informal advice to Mr Coulson while the latter was working for Mr Cameron.) The next day John Yates, the assistant commissioner at the Met who had been criticised for not re-opening the investigation in 2009, also stood down.

It is an improbable scandal that features Rupert Murdoch's humbling at the hands of Parliament as one of its dullest chapters. But compared with the perils faced by the prime minister and the decapitation of the world's oldest police force, the interrogation of the head of News Corporation (NI's parent company) by a committee of MPs on July 19th was dry stuff. Little was extracted from the laconic octogenarian other than the impression that his grip of detail in some corners of his media empire is less than vice-like. Also questioned were his son, James, who runs the Asian and European bits of News Corporation, and Rebekah Brooks, another former News of the World editor who resigned as chief executive of NI on July 15th. They were more loquacious, but still constrained by the ongoing criminal investigation into the matter. In the end, the showdown between the masters of the media universe and the Mother of Parliaments will be mostly remembered for the slapstick of a foam-pie assault on the elder Murdoch.

Mrs Brooks's resignation had been widely demanded since the revelation on July 4th that the phone-hacking in 2002 of a missing schoolgirl, Milly Dowler, who was eventually found murdered, had happened on her watch. She was joined in her departure by Les Hinton, the publisher of the Wall Street Journal (another newspaper in the Murdoch stable) who ran NI between 1997 and 2005. On July 18th Sean Hoare, a former News of the World journalist who had helped to expose the scale of the newspaper's misdeeds, was found dead. Police describe his death as “non-suspicious”.

Things could get worse for Mr Cameron. If Mr Coulson is charged and prosecuted, questions about his judgment will return in force. There could be further revelations about exactly what he knew of his recruit's shady past, and when. There were also chinks in his broadly impressive Commons performance on July 20th that could hint at trouble to come: he was ambiguous about whether he had ever discussed News Corp's now-abandoned bid for total control of BSkyB, a broadcaster it already part-owns, during private conversations with Mrs Brooks. Even his friend, George Osborne, is mired, as the chancellor of the exchequer is thought to have recommended Mr Coulson to the Tory leader in 2007. For perhaps the first time since the coalition was formed between the Conservatives and the Liberal Democrats in 2010, Nick Clegg, the unpopular Lib Dem deputy prime minister, has less to worry about than his Tory colleagues. His party has never been close to the Murdoch empire.

Dread of paralysis

But for all the career carnage on show elsewhere, the tangible political damage wrought by the scandal has been slight so far. An Ipsos MORI poll published on July 20th showed the Tories down by a significant but hardly irretrievable five percentage points over the past month, with the prime minister's personal ratings also dented to the benefit of Mr Miliband. Government and opposition MPs report indifference to the scandal among their constituents, who are far more concerned about public services and the economy, and who are becoming cynical about all newspapers. On July 20th the New York Times reported allegations by five former journalists of phone-hacking at another British Sunday paper. Eyebrows failed to rise.

A more realistic dread for Mr Cameron than an outright breakdown of trust with his electorate is that the hacking furore will paralyse public life for an indefinite period. The prime minister had to cut short a trip to Africa to take charge at home. Parliament, due for its summer recess, was recalled for a day. Mr Cameron's unveiling of his white paper on public-service reform on July 11th was ignored. In Sir Paul and Mr Yates, Britain has lost an acclaimed Met commissioner and its most senior counter-terror officer, just a year before the Olympic games turns London into an even bigger terrorist target than usual. The broad inquiry launched by Mr Cameron, led by Lord Justice Leveson and featuring former journalists and media regulators, could bog government down for months. Criminal trials of the main actors, such as Mr Coulson, could do the same.

The hacking scandal is often compared to Tony Blair's embarrassment in 1997 over a donation his Labour Party had received from Bernie Ecclestone, a motor-racing magnate. But it is different in two important respects. First, the Ecclestone affair was a short, sharp shock for Mr Blair. The hacking scandal has already lasted longer, and will go on. A more appropriate parallel from the Blair years might be the inquiry into the death of the government scientist, David Kelly, in 2003, in the aftermath of the Iraq war. This gradually sapped the government's energy. Mr Cameron, who is trying to reshape the British state as well as eliminate its structural fiscal deficit by 2015, cannot afford such enervating distractions.

The other difference, however, is that Mr Cameron has never been quite as popular or as saintly-seeming as Mr Blair was before the Ecclestone scandal. As a result, his fall is less steep. Slickness, evasiveness and proximity to media elites have always been part of the Cameron brand—he spent seven years as a public-relations adviser, after all. That voters probably had lower ethical expectations of him to begin with could, perversely, help him now.

Corruption's trackers

At the committee hearings Rupert Murdoch seemed old and out of touch (he has seemed so for years, but now it was obvious to everyone) while his son James seemed slicker and more assured. The young Murdoch's position, very wobbly a week ago, now appears much stronger. He is not safe from further allegations of wrongdoing and cover-up at NI, such as compensation paid to victims of hacking and the payment of legal fees of a convicted felon, Glenn Mulcaire. But the contrast between father and son was striking.

For investors this is a good sign. For some time they have believed two things: first, that newspapers are inherently a worse business than film, broadcast television or pay-television; and second, that Rupert Murdoch has lost his touch. He has been associated with a string of bad decisions and bad deals in the past ten years, culminating with the acquisition of Dow Jones for $5.6 billion in 2007. This week several influential Wall Street analysts argued that Rupert Murdoch's apparent weakness, and problems at the newspaper division, presage a move away from newspapers. To them, that is a buy signal. The markets seemed to agree on July 19th, with News Corporation stock up by 5% in the wake of the Murdochs' appearance before the committee. Michael Nathanson, an analyst at Nomura, separated News Corporation into three hypothetical companies: a good one, based on television; a bad one, which makes films; and a downright toxic one, which runs newspapers. He suggests investors focus on the former.

Against this must be set the growing threat of legal action, both in Britain and elsewhere. On July 19th Lord Macdonald, the former director of public prosecutions, who now works for NI, told a parliamentary committee that e-mails in the possession of the News of the World contained “blindingly obvious” evidence of payments to police officers. If the paper did pay coppers for information it could spur a prosecution under America's Foreign Corrupt Practices Act (FCPA). The act, which has been on the books since 1977, has teeth; in 2008 it imposed a settlement of $800m, its biggest ever, on Siemens, Europe's largest engineering company, for paying bribes to governments round the world.

The FCPA was not written to punish crimes such as paying police officers for information. It was devised to punish the giving of bribes for obtaining or retaining business abroad. But in recent years the law's reach has greatly expanded, points out Mike Koehler, who follows the subject at Butler University. It has been invoked in a case involving the bribery of an Iraqi police officer. An American court has ruled that payments to a foreign official to reduce taxes and customs duties could be a violation of the FCPA.

In truth, nobody knows how powerful the FCPA is. Most laws lead to prosecutions, convictions and appeals: over time, a body of case law builds up and judges smooth the rough edges. This has not happened to the FCPA. So hefty are the consequences for a company found guilty under the law, and so averse are companies to legal risk-taking, that virtually all firms co-operate with investigators. Only two cases involving corporate defendants have been tried in court.

Far from being smoothed, the FCPA has added sharp edges over time as more and more companies agree to co-operate with investigators over increasingly trivial offences. It is not merely that the FCPA means what its enforcers say it means. In effect, the law means what companies fear the Department of Justice and the Securities and Exchange Commission (SEC) may come to believe it means. The law's reach is spreading like spores in the air, fanned by corporate paranoia.

If the allegations about payments to police officers stand up, News Corporation could decide to pre-empt an outside investigation by doing one of its own. Other firms have voluntarily brought evidence of bribery and dodgy record-keeping in their companies to the Department of Justice and the SEC. The federal agencies, which have only a handful of FCPA investigators, have mostly allowed them to get on with it, provided the companies share their findings. Such reviews are rarely limited to one country: the Department of Justice and the SEC tend to demand that firms prove no bribery has taken place anywhere in the world. It can be a long, costly process even before fines are imposed.

Another possibility is that America's Federal Communications Commission (FCC) could strip News Corporation of its broadcast TV licences. There is a precedent, points out Rebecca Arbogast of Stifel Nicolaus, an investment bank. RKO, a subsidiary of a tyre company, was denied a licence in 1980 on the ground that it had withheld knowledge of bribery by its parent in Chile. Yet that case was something of a high-water mark for the commission. These days it generally refuses licences only when a company is found to have lied to it. The FCC's chairman, Julius Genachowski, seems in no hurry to review Fox's licences. A British media outfit doing unpleasant things to British people in Britain is probably not enough to force the FCC's hand, reckons Ms Arbogast.

The Digger in America

Rupert Murdoch and News Corporation are viewed differently in America from the way they are seen elsewhere. In Britain—and Australia—Mr Murdoch is a press baron, a manipulator of politicians, a kingmaker. MPs besieged him with questions on July 19th when he told them that he often entered the prime minister's residence through the back door (under Mr Blair, though, he had entered by the front). News Corporation also looms far bigger than any other media company in Britain, and Mr Murdoch is the symbol of commercial media power.

In America, by contrast, News Corporation is one of five big TV-oriented media firms: the others are Comcast, Disney, Time Warner and Viacom. It is known more for “American Idol” and “House” than for newspapers. Since 2007 News Corporation has owned the Wall Street Journal, America's biggest-selling paper. But the Journal was editorially conservative long before Mr Murdoch took it over. The firm's only other major newspaper, the New York Post, sells just 523,000 copies on weekdays—less than one-fifth of Britain's Sun—and is read in a Democratic enclave, which saps its influence.

As garish, but less influential

News Corporation does, however, own the most polarising cable network in the country: the Fox News Channel. This is adored by conservatives and loathed by liberals. Despite drawing only about 3m viewers each evening (“American Idol” gets 15m) the channel is commonly accused of poisoning political discourse in the country. Together with the liberal MSNBC, it has certainly helped to entrench political partisanship and enforce ideological purity in the two major parties.

Liberals would do almost anything to bring down the Fox News Channel. Since the British phone-hacking scandal intensified, online outfits like Media Matters and the Daily Kos have made heroic efforts to draw a thread between the channel and the British newspaper. (A sample headline from the Daily Kos: “US and British News Corp outlets share similarities in agendas, practices”.) They happily cite a recent story in the New York Times, which identifies a common pattern in the News of the World affair and a scandal involving News Corporation's marketing division that led to a large payout by the company.

Few outside the liberal blogosphere are buying it. Republican politicians do not pore over liberal blogs, and they regard the New York Times as biased to the left. So far, those who have spoken publicly on the issue have distinguished between the British newspaper division and the America-based company. Rudolph Giuliani, a moderate Republican and former mayor of New York, called Rupert Murdoch “a very honourable, honest man”.

In Britain, the real commercial damage to News Corporation from the phone-hacking scandal took place only after the Conservative Party turned against the company. As soon as Mr Cameron suggested that News Corporation should reconsider its bid for BSkyB, the deal was as good as dead. This is probably true of America too. If there is an outrage of the Milly Dowler sort that inflames public opinion, the political calculus around News Corporation could change quickly and decisively. And if the politics changes, so, probably, will the regulatory framework.

The potential for such a shift lies in the claim, made by Britain's Daily Mirror, that relatives of the September 11th 2001 terrorist attacks had their mobile phones hacked by the News of the World. If that were proved, it could well tip the balance in America with extremely destructive implications for News Corporation. The allegations have not been proved; indeed, the Washington Post has attacked the Daily Mirror for sloppy reporting, and Rupert Murdoch told the parliamentary committee that he did not believe the FBI had found any evidence of such hacking. But the police still have to contact thousands of people on Mr Mulcaire's list, and it is not hard to imagine the possibility that they could be speaking to an American or two.

Freedom, accountability, plurality

Whatever the fallout across the Atlantic, the Milly Dowler hacking revelations have changed British political attitudes to media regulation with startling rapidity. Freed from NI's grip, at least temporarily, politicians now seem minded to prevent any media company from acquiring the sort of power that News Corporation had acquired in Britain. There has been talk of reintroducing foreign-ownership laws, and also of tightening media plurality laws so as to make it a continuing test, applied as companies grow and acquire market share, not just when they merge or acquire each other. On July 14th Mr Clegg laid down three principles of “freedom, accountability and plurality”, and declared that “diversity of owners is an indelible liberal principle, because a corporate media monopoly threatens a free press almost as much as a state monopoly does.”

As well as changing Britain's media, the scandal has provided insights into its prime minister. Mr Cameron has been mocked for his crisis management, but this misses the point. He generally thrives in a crisis; his Commons performance was not the only backs-to-the-wall triumph in his career. But his complacency—the dark side of his vast self-belief—makes him hopeless at avoiding crises in the first place. This year he has ditched bad or unpopular policies on health care and crime that were cooked up while he was paying scant attention last year. Similarly, he probably hired Mr Coulson not through any amoral calculation but because he did not think through the risks involved. He, like NI, the Met and so many others, has much to learn from his brush with political mortality.