Interesting piece in the New Yorker by James Surowieki looking at the impact of fraud on the broader economy. Surowieki make the very good point that it's not just the people who are ripped off that are hurt. Companies smoothing their earnings hire more people. Trouble is when they come to grief, that's lots of folk out of work. Similarly, WorldCom's lies about its profits, internet traffic and demand for telecom capacity, forced its competitors AT&T and Sprint to over-invest in technology and, ultimately, to sack workers. Because corporate fraud inflicts what economists call "social costs'', it requires legislation like Sarbanes-Oxley. Yes it's expensive, but it would be a lot more expensive without.

Still, that doesn't stop the criticism of SOX, and it's not only coming from America. Board Performance Limited chairman Bob Garratt has described SOX as a disaster that's resulted in costly bureaucracy of reporting systems and executives and directors scared of taking risks. Garratt says it will take directors 10 years to find their feet.

Two different viewpoints, but both raise important questions. SOX is unlikely to stamp out all fraud and usher in what President Bush called the end of an "era of low standards and false profits". Fraud, and its social costs, is with us, so what else is needed? And if SOX is here to stay, where does it need tweaking? Last Saturday, for instance, the Business Law Prof Blog pointed to deficiencies. Like the way the legislation was introduced to deal with auditors who had misbehaved, and ended up enriching them. UCLA law professor Stephen Bainbridge offered more criticisms in a TCS column.