UNITED STATES

Enron, WorldCom — there's worse to come

The timing was spectacular. On June 24, US President George Bush delivered a lecture to the Palestinian people about the corrupt and autocratic nature of the elected leadership of the Palestinian Authority. The next day, the US$3.8 billion WorldCom fraud was exposed.

Share prices around the world dived, but not as much as the public credibility of Corporate America. It has even been given a technical sounding name in the official jargon of the corporate globalisers: “collapse of confidence in corporate governance”. Sounds like a minor glitch that some technicians should fix, but it isn't.

After months trying to sweep Enron under the carpet, World Emperor Bush now says to his council of corporate donors: Sorry guys, someone is going to have to go to jail for this. We have to toss the rabble a head or two.

But will a corporate head or two, or even 10, be enough to persuade the US public to forgive and forget corporate corruption and get on with cheering the multi-billion dollar “war against terrorism”? Probably not. Here are some reasons why.

First, the scale of the scandal. According to the London Times, “The size of the alleged profits overstatement at WorldCom is more than double the previous record, set by the pharmacy chain Rite Aid, and makes the accounting irregularities at Enron Corporation look like a rounding error.”

Already 17,000 jobs have gone. If WorldCom goes bankrupt, tens of thousands more will go. According to Morningstar, a Chicago-based mutual fund advisory group, 359 mutual funds owned 400 million of the three billion outstanding shares of WorldCom, so a lot of workers are going to see their pensions and superannuation savings evaporate as a direct result of a WorldCom collapse. Many times more may feel the same pain as a result of the broader stockmarket decline.

Millions of telephone and internet users will also be forced to shoulder the cost of a WorldCom collapse, as the company provided 20% of long-distance phone services in the US and serviced 3000 of the 7500 US internet service providers.

Second, there are more major US corporate frauds about to be exposed. According to the June 27 Christian Science Monitor, a survey of top corporate ethics officers by the New York-based Conference Board predicts at least a half dozen more “major” corporate scandals will be revealed over the next 12 months. The next day, the giant Xerox photocopying and printing corporation admitted it had overstated its revenues during the past five years by almost US$2 billion.

Third, since the protests against the World Trade Organisation in Seattle in November 1999, millions of people around the world have taken to the streets against corporate globalisation. Bush's September 2001 declaration of the “war on terrorism” notwithstanding, the numbers at major anti-globalisation protests have grown.

Motivating this wave of protest is the outrageous scale of global corporate exploitation and assault on democracy summed up in figures like these (recently compiled by Russell Mokhiber and Robert Weissman, co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy):

Executive pay in top US corporations climbed 571% between 1990 and 2000.

US corporate tax payments are slated to drop to historic lows as a result of the tax bill enacted into law earlier this year. According to Citizens for Tax Justice, corporate taxes will plummet to only 1.3% of US gross domestic product this year, the lowest since fiscal 1983, and the second lowest level in the last 60 years.

More than half of the tax cuts enacted last year that are scheduled to take effect after 2002 will go to the best-off 1% of US taxpayers.

Even in the United States — the nation that is supposed to be the biggest winner from globalisation — the average person has watched skyrocketing executive compensation and wealth accumulation, but has not been able to climb even a few steps up the economic ladder. Average real wages in the US are at or below the wage rate of 1973.

One in six children in the US live in poverty. In 2000, a full quarter of the US population was earning poverty-level wages, according to the Economics Policy Institute.

Around the world, 1.2 billion persons live on a dollar a day, or less.

Tens of millions of children worldwide are locked out of school because their parents are unable to afford school fees.

More than a million children die every year from diarrhoea, because their families lack access to clean drinking water.

So it is a gross understatement to say that there are good reasons for the global “collapse of confidence in corporate governance” and it goes way beyond Enron and WorldCom.

After a day of panic on June 27, the US stockmarket recovered. But the sharp dip and recoveries associated with events like the 2001 deflation of the dot com bubble, the September 2001 terrorist attacks in the US and the Enron and WorldCom scandals are only dramatic points in a broader trend of decline — despite the deliberate attempts by pro-capitalist journalists to obscure the real processes.

According to the Christian Science Monitor, US$5.5 trillion has been wiped off the paper value of US corporate stocks in the last 27 months.

Charles Pradilla, chief investment strategist at S.G. Cowen Securities Corp, warned the Washington Post recently of a serious negative development in “investor psychology”.

The market now looks like “a crooked house, a sophisticated game of three card monte”, Pradilla said. “People have decided that they're better off investing in things they know and understand, like their houses, as opposed to things they don't, like stocks.”

But the decline can't be reduced to “investor psychology”. “There have been warnings for a long time that the markets were into a bubble of inflated share prices”, Professor Meghad Desai of the London School of Economics explained in the June 27 UK Independent. “Alan Greenspan, the chairman of the US Federal Reserve, chided Wall Street for its 'irrational exuberance' as long ago as 1996. The level of share prices was below what it was yesterday.

“In the six years since Mr Greenspan's remarks, sober economists and policy-makers have tried to understand why investors have been willing to pay a multiple of 30 to 40 times the earnings of a share. They tried all the standard theories of share pricing. None was adequate to explain the behaviour of investors.”

“Just how sick is our economy?” asked James Flanigan, business columnist for the Los Angeles Times in a June 23 review of Robert Brenner's new book The Boom and the Bubble: The US in the World Economy.

“If Brenner is right”, wrote Flanigan, “and the world is headed for serious recession, adequate returns on retirement savings may not be possible. That would mean living standards would not rise and aging Americans would have to postpone retirement. It would mean that poor countries would be stunted in development, and that the disorder of such developing regions as the Middle East would be exacerbated, not alleviated.

“Yet Brenner, who completed his book before Sept. 11, was not able to factor into his analysis greater military spending by the United States, the recent shift to deficit spending, the re-entry of Russia to full participation in the global economy and other changes. It is nonetheless a prediction that demands our attention.”

Flanigan also draws hope from the fact that the paper value of the US economy is now larger than the combined economies of Japan, Germany, France, Britain and Italy thanks to “rapid” US growth (and the huge relative increase in the US dollar) in the 1990s. But the higher you climb, the harder you fall and with greater global interdependence comes the prospect of a US-led world recession, warns Brenner:

 “The deflation of the stock market bubble is propelling a US economy, heavily burdened by manufacturing overcapacity, toward a serious recession, and in the process detonating further recession all across an advanced capitalist world that is similarly held down by superfluous productive power.

“The resulting downturn is weighing particularly heavily on the triangle of interlinked economies in East Asia, Japan and the US itself, so that a mutually reinforcing downturn seems in prospect.”

Brenner is joined by other Marxist economists in noting that pro-capitalist economists fail to look behind the rise and falls of various markets. “The part of the story that's missing in the mass media generally is the force that drove investment to the US stock market in the first place. In brief, it was a crisis of overproduction”, explained Seth Sandronsky in an internet post on <http//:www.commondreams.org>.

“Industry after industry had made more products — autos to computer chips — than could be sold for a profit on the market. Market saturation of a particular product didn't happen by itself. The 'why' of the story is that the working majority hasn't been able to buy what it has made.

 “Accordingly, overproduction reduced profitability for those who buy labor-power. No profits, no investment in more productive capacity. The result was lots of money with no place to go.”

From Green Left Weekly, July 3, 2002.
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