When radical critique becomes mainstream observation, change may be in the air.

["Ian Murray" <seamus2001@xxxxxxxxx>]

COMMENT | July 1, 2002
WILLIAM GREIDER

Bad for Business

"How many times can you say 'unbelievable'?" my wife asked the other
morning, as I was rattling the newspaper and again exclaiming over the
latest outrageous news from American capitalism. Maybe it was the story
about the CEO of Tyco International, a very wealthy and much admired
titan, being indicted for evading the New York State sales tax on his
art purchases. Perhaps it was the disclosure that the soaring market in
energy trading, a jewel of the new economy, was largely a fabrication
built on phony round-trip trades. Or the accusation that Perot Systems,
after designing California's deregulated energy-trading system, turned
around and showed the energy companies how to blow holes in it (and
generate those soaring electric bills for Californians).

It is unbelievable--what we've learned in the past six or eight months
about the financial system and corporate management. The systematic
deceit and imaginative greed--the sheer chintziness of personal
finagling for more loot--go well beyond the darkest hunches harbored by
resident skeptics like myself. Indeed, the Wall Street system is now
being flayed in the media almost daily by its own leading tribunes.
Listen to this summary of the scandals: "The failures of Wall Street's
compliance efforts are coming under intense scrutiny--part of a growing
awareness of how deeply flawed the US financial markets really are. The
watchdogs charged with keeping the financial world honest have all lost
credibility themselves: outside auditors who bend the rules to please
corporate clients, analysts who shape stock recommendations to woo
investment-banking customers and government regulators too timid or
overwhelmed to keep track of the frenzy." You might have read those
points in The Nation, but these words appeared on the front page of the
Wall Street Journal. A week later, another page-one Journal story
crisply explained the implications for global investors: "Boasts about
world-class corporate disclosure, bookkeeping and regulation of American
financial markets have become laughable in the wake of Enron and Arthur
Andersen scandals."

When radical critique becomes mainstream observation, change may be in
the air. In my view, this is a rare historical moment--conditions are
ripe for reforming and reordering the system, an opportunity unmatched
since World War II. How things really work is on the table, visible to
all in shocking detail, authoritatively documented by the torrent of
disclosures, with more to come. The libertarian ideology that colonized
economic affairs and politics during the past two decades (markets know
best, government is an obstacle, greed is good) has been pulled up
short. The conservative orthodoxy is vulnerable--actually breaking
down--because it has no good explanations for what we now understand to
be routine malpractice in business and finance. Political tinder is
spread all around the landscape, but who will strike the match?

The potential downside of this moment is also palpable and quite
ominous: Nothing will happen, nothing will change--nobody goes to jail,
no significant reforms are enacted. If so, the main result will be
confirmation of an already endemic public cynicism and the further
poisoning of American values. The revelations, instead of provoking a
sea change in political thinking, may be smothered by the alignments of
corporate-financial power, diverted into false reforms and complexified
to the point that media attention and public anger are exhausted. In
that event, the consequences for the country will be less obvious but
profoundly corrosive. The system would go forward in roughly the same
fashion (perhaps tarted up with public-relations rouge), and everyone
would understand that corruption is the system. In markets and in the
popular culture, the message would be: Forget that crap about
ethics--might as well take the low road, since that's how the big boys
get theirs.

The stakes are enormous, and it's much too early to predict the outcome.
But there's already abundant evidence that the business establishment
expects to ride out this storm and is working the usual political levers
to insure it. The politics resemble the S&L debacle in the late 1980s,
when Congressional Republocrats put out lots of noise and smoke but left
the high-priced suits unruffled and stuck the public with the bill. Our
current galaxy of scandals is far more grave because it is systemic.
Anyone with courage among the Democratic presidential hopefuls could
seize this moment and reorder the agenda for 2004, but no one so far has
found the guts to break ranks with corporate power. Smoldering public
anger, however, may yet find a way to express itself, perhaps in the
fall elections, and rouse the reluctant politicians.

For now, the best hope seems to be that the bankers and business guys
will react to the fact that financial markets have been severely damaged
by the scandalous revelations, as have the high-flying moguls of
corporate America. Who can trust them? Who wants to pour more good money
after bad? In other words, this scandal stuff is bad for business,
especially bad for the faltering stock market. Henry Paulson Jr., chair
of Goldman Sachs, delivered that message recently in a sober speech
before the National Press Club and endorsed a number of useful reforms.
His remedies are insufficient (even the Journal editorial page was happy
to bless them) but are a fair start. A chorus of high-minded anguish
from elite circles might persuade Washington that this problem does need
fixing.

The scandals of Enron et al., unfortunately, must compete with another
story--the war on terrorism--that's more exciting, and threatening, than
dirty bookkeeping or the looted billions. The two crises are intertwined
in perverse ways. The smug triumphalism of Bush's unilateralist war
policy could be abruptly deflated by economic events--which probably
would be a good thing for world affairs, since Washington couldn't run
roughshod over others, but terrible for US prosperity. The financial
scandals have provided yet another chilling reason to be wary of the US
stock market, and if overseas investors decide to take their money home
in volume, the already declining dollar will fall sharply. Credit would
thus become suddenly scarce, since our debtor-nation economy relies
heavily on capital borrowed from abroad, and such a convergence would
trigger an ugly downdraft in the US economy. In that event, the
fashionable boastfulness about America, the only superpower, would
implode as swiftly as Enron's stock price.
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