WE NEED TO BE UNITED IN THE FIGHT AGAINST FASCISM AND REPRESSION
In These Times is committed to remaining fiercely independent, but we need your help. Donate now to make sure we can continue providing the original reporting, deep investigation, and strategic analysis needed in this moment. We're proud to be in this together.
Page Not FoundWE NEED TO BE UNITED IN THE FIGHT AGAINST FASCISM AND REPRESSION In These Times is committed to remaining fiercely independent, but we need your help. Donate now to make sure we can continue providing the original reporting, deep investigation, and strategic analysis needed in this moment. We're proud to be in this together. |
||
Page Not FoundWE NEED TO BE UNITED IN THE FIGHT AGAINST FASCISM AND REPRESSION In These Times is committed to remaining fiercely independent, but we need your help. Donate now to make sure we can continue providing the original reporting, deep investigation, and strategic analysis needed in this moment. We're proud to be in this together. |
||
Page Not FoundWE NEED TO BE UNITED IN THE FIGHT AGAINST FASCISM AND REPRESSION In These Times is committed to remaining fiercely independent, but we need your help. Donate now to make sure we can continue providing the original reporting, deep investigation, and strategic analysis needed in this moment. We're proud to be in this together. |
||
Page Not FoundWE NEED TO BE UNITED IN THE FIGHT AGAINST FASCISM AND REPRESSION In These Times is committed to remaining fiercely independent, but we need your help. Donate now to make sure we can continue providing the original reporting, deep investigation, and strategic analysis needed in this moment. We're proud to be in this together.
Fallout
The hidden environmental consequences of 9/11.
What America can learn from its Muslims.
The White House hasn't learned any of them.
Will Digital Kill the Radio Star?
Your radio may not survive.
No Laughing Matter.
Appall-o-Meter
Bush is eager to break longshore workers' union.
Low on Energy
Will the administration bail out puttering power producers?
Bush is to blame for worsening mine safety.
Shock to the System
A growing indigenous and people's movement in Bolivia.
In Person: Evo Morales
BOOKS: Rescuing Ground Zero from the developers.
The Worst of Times
BOOKS: The Future of U.S. Capitalism is now.
Where's the Ecstasy?
FILM: The smarminess of 24 Hour Party People.
At one bar in Jerusalem, there is no intifada and no occupation.
|
August 16, 2002
10 Lessons from the Corporate Collapse
1. There is no new economy. Remember endless growth? The Dow 30,000? Well, business cycles may vary in their details, but they go hand-in-hand with capitalism, and ultimately companies must make real profits if the system is going to work. “Irrational exuberance,” as economists Robert Shiller and Charles Kindleberger most famously explained, is endemic to capitalism. And as Nobel Prize-winner Joseph Stiglitz’s work emphasizes, inevitable distortions and inadequacies of information create irrationality. Despite novel conditions created by computer and telecommunications technologies, and by the expanded global markets, real-world capitalism remains an amalgamation of a narrow concept of rationality (based on the most efficient—that is, most profitable—use of capital) and some fundamental irrationalities. Left on its own, the market is not a perfectly self-regulating mechanism for universal good, but a limited, useful machine that can easily veer off on a destructive course. 2. The crisis is not the result of a few bad apples. The entire barrel is rotten. In this case, the barrel is the framework of rules and regulations for business. Not every executive is a fraud or cheat, but if the system permits cooking the books, defrauding investors, overcompensating executives, rigging prices, polluting the environment, breaking unions and abusing workers, then it puts pressure on every business to move in those directions. The failures of the much-vaunted U.S. model of deregulated cowboy capitalism were already evident in growing inequality and insecurity and a declining quality of life. Now even much of the positive side—growth, profits, new businesses, productivity, soaring stock markets—has been called into question as an accounting chimera. It’s time to question the whole model—lock, stock and barrel. 3. Banish the cult of the invincible CEO. The excesses of managers have helped destroy many corporations, millions of good jobs and the retirement security of tens of millions. CEOs have treated their posts as a license to loot their own corporations, workers and even investors. The problem is not just bad accounting, but no accountability. Every corporation needs at least a majority of independent directors (as well as directors selected directly by employees). Protection is also needed against self-serving actions (like CEO-appointed compensation committees and golden parachutes), greater power for shareholders, and guarantees of the right of all employees to organize. Ultimately, corporations must answer not just to their executives, or even their shareholders, but to society as a whole. 4. Regulation is good. Indeed, regulation is necessary, both for the survival of the system and, more important, to make the system fairly deliver the goods. First, the financial system should serve the needs of the broader economy, not create speculative bubbles. Over the past two decades, old regulations of finance were dismantled—like the separation of investment and commercial banking. The Federal Reserve failed to rein in the exuberance (as tougher requirements on lending for stock speculation might have done). Financial “innovations” sprang up without any control (like the special purpose entities used by Enron or a vast world of financial derivatives). And crony capitalism flourished. Second, the market must be governed by certain rules of fair play to maintain competition and channel it in socially productive directions. While non-governmental groups, including unions, can play an important role, the government is the essential regulator, even if the mechanisms government uses and the way regulations are written are open to debate. 5. Regulation must go global. The expanded global market has given corporate executives and financial speculators more freedom to escape regulation and to play off one country against another. But governments also have rushed unwisely to give away the power they still possess. Expanded “trade” agreements are locking in a worldwide order that makes it more difficult to regulate corporations in the public interest. And the exposure of more economies to the deregulated global financial markets has increased instability and hardship. Take the example of American companies relocating to foreign locales to avoid taxes. Initially Bush was fighting European efforts to rein in tax havens, but the public temper has turned as a result of the corporate scandals and a heightened sense that escaping taxes during wartime is unpatriotic. Political and labor movement pressure recently stopped Stanley Works from leaving Connecticut for Bermuda, and Congress barred military contracts to companies that fled after January 1 (and may close the loophole entirely). But there is still a big problem that hurts poor countries as much as the rich: One-third of total global gross domestic product is now held in financial havens, Oxfam reports, and the conservatively estimated $50 billion in revenue that poor countries lose every year to tax havens is equal to six times the cost of achieving universal primary education. 6. Let the sun shine in. The International Monetary Fund and the U.S. government demand that poor countries be more financially transparent. That would be a good idea in the United States, too, especially for so-called public companies. Now the whole system is an insider’s game, with stock analysts—promoters, more accurately—giving special access to stock offerings managed by their companies to favored executives (or insiders like Martha Stewart and George Bush getting tips to dump stocks before bad news is released publicly). Instead, there should be one set of books open to everyone. Relationships among research, brokerage, banking, consulting and auditing businesses also should be kept at arm’s-length. There should be tougher regulation of insider trading, full accounting of stock options as expenses, and prohibitions against short-term holding of options by executives. Institutional investors, like big mutual fund companies, should be open about and publicly accountable for how they vote their shares. 7. The economy should serve real people and real needs. It’s simply ludicrous to assume that bowing to the whims of the market is the best way to provide what most people need. Capitalism can be creatively productive, or it can be parasitic (as in the capitalist classes in so many undeveloped countries). Despite the technological innovations (and it’s worth remembering that the Internet and much of the computer revolution would never have happened without government funding in the early stages), American capitalism has turned increasingly into a scheme for the powerful to plunder existing wealth through takeovers, corporate restructuring, privatization and other financial maneuvers. This is reflected in growing inequality and the concentration of wealth and income at the very top—a development exacerbated by tax cuts for the rich. The trend is shown most starkly in how the new “barons of bankruptcy,” to borrow the Financial Times’ phrase, enriched themselves while driving their companies into the ground. Meanwhile, in courtroom bankruptcy proceedings, workers are near the end of the line when it comes to claims on corporate assets. Adding injury to insult, Congress is likely to approve new personal bankruptcy legislation when it returns in September. That bill greatly harms individuals, protecting the banks and credit card companies but not those losing their health insurance (though health-related financial problems are a leading cause of personal bankruptcy). This is precisely the inverse of the lesson that Congress should have learned. 8. Stop shifting risk. In every sphere of life, the trend has been to shift increasing amounts of risk to the average American. Although sold under the attractive names of “choice,” “freedom” and “flexibility,” the typical result has been to threaten their livelihoods. For example, riskier defined-contribution pension plans—like 401(k)s, which Congress still hasn’t protected and regulated—have been replacing defined-benefit pension plans. Growing numbers have no pension plan at all. And though Bush and the Republican leadership continue to push Social Security privatization, which would massively increase retirement insecurity, some Republican candidates are changing their positions—or at least their rhetoric—as public opinion swings against such schemes. Safety nets are diminishing: While the boom economy in the late ’90s reduced poverty somewhat, the numbers of people in “extreme poverty” actually increased, as welfare and other assistance was cut. Fewer families have health insurance, and the insurance they do have covers less. Meanwhile, free trade exposes more workers to the risk of losing their jobs. Yet while a diminishing percentage of workers have union contracts to protect them, no CEO will take a job without a contract that pays him or her handsomely, even if the exec screws up and is forced out. 9. The corruption of politics by corporate money is bad for democracy—and the economy. The Democrats, who should be for government regulation of the economy to help working people, have lost any sense of conviction and direction. Much, though not all, of the blame for their submission to the market-fundamentalist, pro-corporate agenda lies with the current campaign-finance system. As a result, the range of political debate has been narrow, and working people have little voice. That means there is less ability to win the kinds of reforms that are needed to make the economy work well. The McCain-Feingold reforms are not likely to change that situation significantly, though public financing could. 10. It’s the powerful versus the people. For a brief moment, Al Gore had it half-right, even if he (and especially his running mate Joe Lieberman) didn’t really believe it. For the past three decades, the powerful have waged a very successful but “one-sided class war” (in the words of former United Auto Workers President Doug Fraser). Of course, it has been fought in different terms—against big government, taxes, regulations and inflation, but for free trade—and it has hidden under many other banners (including a wide variety of social issues like gun control and abortion that obscured the economic agenda of the powerful).
There has been a much less vigorous effort to mobilize the people to curtail the powerful and keep them socially accountable. The final lesson is that the times and popular sentiment may be as ripe as any in decades for reviving that old populist message. Return to top of the page. |
|
WE NEED TO BE UNITED IN THE FIGHT AGAINST FASCISM AND REPRESSION
In These Times is committed to remaining fiercely independent, but we need your help. Donate now to make sure we can continue providing the original reporting, deep investigation, and strategic analysis needed in this moment. We're proud to be in this together.
udging from George W. Bush’s “Wacko” economic forum, the fragile economy needs more tax cuts for the rich, more unfettered markets, more personal virtue—and then everything will be all right. Give the Bush-Harken-Enron-Cheney-Halliburton team an A+ for consistency, but failing marks on all other counts. There are many lessons to be learned from the collapse of the bubble economy and the scandals of corporate financial skullduggery, but the White House hasn’t learned any of them. Here are 10 for starters.
