The God That Failed

["Michael Hoover" <hooverm@xxxxxxxxxx>]

http://www.hindustantimes.com/news/printedition/120702/detIDE01.shtml
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                  THE GOD THAT FAILED
by Praful Bidwai
The Hindustan Times (Delhi) July 12, 2002.

When former World Bank chief economist ― and economics
Nobel winner ― Joseph Stiglitz sharply criticised
neo-liberal 'market fundamentalism' two years ago as
"both bad economics and bad politics", he was roundly
condemned as an old-fashioned Cassandra. 

All such Cassandras were admonished by pro-marketeers
to look at the 30 most 'developed' OECD countries as
well as 'developing' countries like Argentina for live
and convincing disproof of their argument that
neo-liberalism's premises about markets and their
assured efficiency do not hold in the real world of
imperfect information and competition. 

Then came the biggest peacetime market-led economic
collapse the world has ever witnessed ― in none other
than Argentina. This free-fall process remains unended
despite gutting half of Argentinian livelihoods and
devouring numerous presidential careers. 

The neo-liberals cannot even begin to explain why this
happened. Nor why the 'developed' countries faithfully
practising market-driven agendas have been in the grip
of a recession following the bubble-boom of the late
Nineties and why they have failed to lick longstanding
problems of slow growth, industrial excess capacity,
and high unemployment. In western Europe, there is
growing popular disillusionment with the privatisation
of water, power and healthcare, and talk of
renationalising the public services ― e.g. Britain's
Railtrack and France's Telecom. 

Take another example. When MIT
economist-turned-columnist Paul Krugman characterised
the Enron scandal (the world's biggest bankruptcy) as
a disaster even greater than September 11, he was
comprehensively lampooned and derided by conservatives
for minimising the self-correcting capacity of
markets, as well as the 'innate' resilience of the
American model of capitalism, based on audacious
market innovation, technology generation and
'share-holder value'-based management. 

We now have the seismic shock from WorldCom, followed
by Tyco, Global Crossing, Vivendi, QWest, Invensys,
and now Xerox, Merck, possibly Halliburton ― a series
of mega-scandals which testify to American
capitalism's capacity for 'corruption on an almost
unfathomable scale' (Stiglitz). 

These 'fallen angels' of 2002's first half ― 34 in the
US alone ― may well be joined by Alcatel, Ericsson,
Northrop Grumman and Fiat. The scale of malfeasance or
cooking of the books involved ($ 4 billion in
WorldCom, $ 6-7 billion in Xerox) is mind-boggling.
Loss of 'shareholder value', loan defaults and debts
total even higher ― the last, $ 60 billion in WorldCom
and Tyco alone. 

The US accounts for the lion's share of these
scandals. It has also recorded over the past two years
unprecedented corporate bankruptcies ― 113
publicly-traded companies so far this year, with
assets of $ 149 billion. (Last year, 255 companies
went under, with $ 260 billion in assets.) Much
tom-tommed 'New Economy' leaders figure prominently
here. But not to be left out are longstanding
brick-and-mortar giants like K-Mart and Kaiser
Aluminium. 

The US may be witnessing the gravest crisis of
corporate capitalism since the Great Depression. Even
worse is the crisis of public confidence in corporate
'leadership', and in the integrity of accountancy
firms, regulating bodies and governments. Even George
W. Bush, one of America's most viscerally
pro-corporate presidents ever, admits companies have
been "cooking the books, shading the truth and
breaking our laws". 

He says the business pages of US papers "read like a
scandal sheet"; and yet "more scandals are hiding in
corporate America" which are presumably undermining
"the confidence of our people and the momentum of our
markets". Clearly, the god of neo-liberal
market-fundamentalism has failed. Some of the basic
premises on which corporations are meant to be run
have been trampled down as greedy executives have
given themselves fabulous bonuses. 

The commonest trick is to create phantom companies
that buy a corporate's stock at absurdly high prices
to generate huge profits, which are then used to
inflate share prices. These 'gains' go straight into
the top executives' remuneration. 

A historic hiatus has now opened up between the real
economy and the market transactions of the globalising
corporate world, driven as much by 'irrational
exuberance' as by rank skulduggery. A vicious cycle of
criminalised capital accumulation now stretches from
boardrooms to high government offices, and from
financial companies to the IMF, World Bank and WTO ―
themselves the authors (with the US treasury
department) of the 'Washington Consensus'. 

This situation calls for comprehensive solutions based
on a radical break with the dogma, "governments bad,
markets good", and with reliance on the market as the
sole arbiter of economic transactions, with unfettered
freedom for corporate capital. Bush has just announced
some niggardly measures such as expanding some powers
of the Securities and Exchange Commission, and stiffer
punishment for corporate fraud. These have
disappointed even market managers. They certainly
don't address the root causes of capital's malaise. 

Many other measures have been proposed by economists
and administrators, including enforcing corporate
transparency, and separating consultancy and
accountancy firms, and investment and commercial
banks, which have a mutual conflict of interest. Also
important are disincentives against distortions of
public policy, which prevent correction of 'market
failures'. These include banning 'revolving doors'
between private and public offices. 

However, there is a foundational difference/tension
which needs to be resolved between the Anglo-American
model of capitalism and other models such as the
Japanese, the Asian 'Tigers' (reliance on prudent
State intervention), and the Continental European
(involving a sizeable public sector, and until
recently, intervention by financial institutions). 

The first model relies solely on the stock market for
finance, on minimal (and for 20 years, shrinking)
regulation, on unquestioning faith in managerial
genius, with little unionisation or job security, and
poor-to-non-existent social services. The second,
'social market-economy' model, involves a degree of
directed investment, extensive regulation and
well-developed social security, including unemployment
allowances. 

The first model is extremely dualistic and
inequality-enhancing, the second compatible with a
degree of distributive justice, egalitarianism and
social cohesion. 

The world today is witnessing the bursting of the myth
that the American neo-liberal model is the sole (and
best) route to development. India must draw some
lessons from this myth-deflation: Markets can fail
even more disastrously than governments.
Liberalisation of excessive regulation, with greater
competition, is one thing. Wholesale deregulation,
mindless globalisation and insensate privatisation,
especially of well-managed, profitable,
technologically sound, core-sector enterprises, is
quite another. 

Our ministers may viciously attack the public sector
with privileged information they may rave about the
limitless virtues of disinvestment and sing hosannas
to neo-liberalism even as it bankrupts the world's
people. But we must hope the thinking public will
question market-fundamentalism's infinite certitudes,
oppose core-sector and public services privatisation
and locate economic policy where it belongs ― among
flesh-and-blood people. 

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