Crooked Capitalism

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Crooked Capitalism
by James Hall, Associate Editor

July 3, 2002

"Leaning Left"

James Hall "The problem is a deregulatory, permissive atmosphere that has relied too much on corporate America to police itself. It's as if the line between right and wrong, legal and illegal, acceptable and unacceptable was so little enforced that it became blurred."---Senate Majority Leader Tom Daschle (D-SD)

'I get good advice, if you will, from their people {Arthur Andersen] based on how we're doing business and how we're operating -- over and above just the sort of normal by-the-books auditing arrangement." -- Halliburtion CEO Dick Cheney in an Arthur Andersen promotional video.

First it was the Enron scandal, overstating profits and hiding losses in overseas partnerships. Then the accounting scandal at Arthur Andersen where theoretically independent auditors covered up the Enron figures. Then Merrill Lynch came under investigation for compensating its stock analysts to shade the truth on the prospects of failing corporations who had become its corporate clients. Then an insider trading scheme involving Imclone's CEO and his good friend Martha Stewart came to light. The latest headline in this season of corporate calumny is the $3.9 billion in losses over 15 months hidden by Worldcom as "investments." Or was it the $6.4 billion in losses that Xerox tried to hide? Or Vivendi/Universal's hidden $2 billion in losses?

Not only are stockholders and corporate employees being hit over and over, but consumers are being defrauded, too. The internal memos of oil corporations like BP, Amoco, and Marathon show that these corporations have manipulated gasoline shortages to keep prices high. Enron internal memos showed the development of strategies last summer to defraud energy users in California during its energy crisis.

And there's more. Soon to be bankrupt Adelphia Cable kept two sets of books. Dick Cheney's Halliburton Corporation is under investigation by the SEC for an accounting policy he instituted which credited the company's bottom line for $100 million in funds it hadn't yet collected from the federal government. Tyco's CEO resigned amid charges he'd evaded sales taxes on expensive art he collected.

In this climate of fraud, deception, and outright crime, only a fool or the unrepentant libertarian (perhaps the same thing) continues to argue that capitalism needs no cop on the beat. Adam Smith's "invisible hand" has turned out to be reaching into the pockets of consumers, investors, and employees, taking out cash to enrich the CEOs and upper managers at the public's expense.

When at its best, capitalism is still the most efficient system of economic wealth creation and distribution yet devised. But at its worst, it becomes a system that concentrates wealth in the hands of the few by defrauding the many. It's also clear that the climate of deregulation and self-regulation fostered by Republicans and nourished by the Bush administration, combined with the underfunding of corporate watchdogs like the SEC, is responsible for the present crisis.

Unrestricted, laissez-faire capitalism simply gives the green light to America's pampered corporate white collar criminals. While stockholders lost their investments, and rank and file employees their jobs, the CEOs and upper managers of bankrupt corporations bailed out of the mess they created with golden parachutes. Far from discouraging future corporate crimes, our current laws reward white collar crime and white collar criminals with their ill-gotten gains and little or no jail time. In our system of justice, purse snatchers and check kiters get more jail time than corporate managers who steal billions.

And corporate deception as a way of doing business continues. Two-thirds of the new drugs released in the past decade by major pharmaceuticals companies are not new at all, just slight reformations of older drugs whose patents are due to expire. Some pharmaceutical companies paid generic drug companies not produce competitive generic drugs, or to delay their production, or introduce them at only slightly lower prices than the brand name drug. AstroZeneca, for example, paid Barr Industries $21 million dollars to do that with the drug Temoxofin. These practices aren't illegal but they're deceptive and anti-competititive and ought to be illegal.

The naive libertarian belief that corporate executives and those who work for them will act honestly is shown up for the ridiculous notion it always was. The belief that the marketplace will sort out the honest and dishonest has been shown to be a pipedream. Crooks come in all ages, sizes, and socioeconomic brackets, and corporate crime is much safer than other forms of crime these days -- it pays much better, too.

The only way to restore investor and consumer confidence is to put a cop on the beat in the marketplace. The SEC has neither the power nor the resources to fulfill that requirement, forcing state attorneys-general like New York's and New Jersey's to act instead. Two bills to fix the process are languishing in Congress -- a Democratic bill in the Senate and it's weak Republican sister in the House.

Urge your congressional representatives to support the stricter Senate measure, which puts more teeth and more money in enforcement. As long as corporate decision-makers can ignore the consequences of illegal and fraudulent actions and even profit from them, the problems will continue. Charging the top executives with white collar crimes and forcing them to serve jail time is the only way to stop the roller coaster ride that plagues the value of American firms. Add a policeman -- and a jailhouse -- to the marketplace, if it's to remain the place where wealth is created, and not skimmed off the top for the crooks. ***

Photo of the author courtesy of staff files