Crisis in the Credibility of US Capitalism
Posted: Sunday, June 30, 2002
Crime in the Suites Enabled by Political Corruption Causes a Crisis in the Credibility of US Capitalism
by Tom Turnipseed
The continuing revelations of corrupt corporate governance enabled by political campaign contributions is deepening daunting doubts about the credibility of U.S. equity markets and political leadership. The corruption is creating a widening crisis of confidence and is the sort of pernicious pathogen that can inflict a debilitating blow to the United States' leadership in economic globalization. Guido Rossi, a former Italian telecom chairman said, 'What is lacking in the U.S. is a culture of shame. No C.E.O. in the U.S. is considered a thief if he does something wrong. It is a kind of moral cancer."
The loss of global confidence in the United States is causing foreign investors to pull back from U.S. corporations and turn to European and Japanese equity markets. Wolfram Gerdes, a German investment banker said, "There is unanimous agreement that the U.S. is not the place to invest anymore," and, "This is the most pessimistic sentiment against the U.S. I have ever experienced in my career." This sentiment is also undermining the value of the dollar that drives up the price of imports to the U.S.
The very latest breaking scandal is Xerox Corporation, the world's largest copier maker, which admitted inflating revenues by $1.9 million the past five years by misreporting the timing and makeup of equipment sales. With no end in sight, the crumbling credibility of corporate America further accelerated this week with the death spiral of WorldCom. The telecom giant is apparently heading toward the largest bankruptcy in United States history after an auditing committee discovered that $3.6 billion in expenses were improperly booked as capital expenditures. WorldCom executives, like other corporate crooks, paid politicians to position themselves to be able to steal.
According to The Center for Responsive Politics, WorldCom gave about $7.5 million in soft money, PAC and individual contributions since 1989 to Federal candidates and the two major parties with Republicans and Democrats sharing almost equally in the bounty. WorldCom has also spent about $11 million in lobbying expenses since 1987.
One of the biggest beneficiaries of WorldCom's political largess is South Carolina's U.S. Senator Fritz Hollings, the powerful chairman of the Senate Commerce Committee. In the past ten years, Hollings has received over $32 thousand in contributions from WorldCom and it is anybody's guess how much the South Carolina Democratic Party has received from WorldCom in soft money due to Holling's influence. On July 27, 2002, the Chicago Tribune described Hollings as, "One of the companies most important friends....who shares WorldCom's antipathy to regional phone companies." Hollings is considered to be the political go-to-man in the tremendously competitive telecom industry which is a risky business as many regular phone services are being supplanted by inter-net services.
Worldcom is the latest example of corporate corruption and chicanery in a lengthening list of high profile U.S. corporate executives who have, in one way or another, deliberately deceived business associates, shareholders, employees and regulatory agencies for their own personal enrichment.
Top executives of Enron, Arthur Andersen, Adelphia, Global Crossing, Dynergy, Tyco, Qwest, Imclone, and even Martha Stewart Living Omnimedia are either being investigated for improprieties or have been charged with wrongdoing. Ms. Stewart has been the empress of etiquette and the icon of good living in our era of affluence, and hopefully, her ethical demise will dim her luster as the desirable denizen of "the good life". Many of Ms. Stewart's devotees seem to be overly enamored of living lives that look good rather than living lives that do good.
As sequels to the many productions that have emphasized celebrity and the lives of the rich and famous, the media should now describe the humiliating details of the descent into criminal activity of these wealthy and powerful people. We will make a mockery of our vaunted system of justice if such rich celebrities do not go to jail for stealing millions of dollars when poor, everyday people go to jail for stealing hundreds of dollars.
With the reeking revelations about WorldCom this week, the talking heads on television are predicting the disclosure of more "cooked books" and scandals to come in major U.S. corporations. As the U.S. equity markets become more erratic and plummet downward, it is interesting to note that the price of stock is 23 times over earnings, which is an overpriced ratio that makes the market vulnerable to further declines.
Meanwhile, President Bush is worried about the political fallout from the rash of corporate scandals as evidenced by polls like the Gallup survey in January that found that 63% of the respondents said big business had too much influence over his administration. Bush responded to the latest corporate scandal by saying, "I am deeply concerned about some of the accounting practices. Those entrusted with shareholder's money must-must-strive for the highest of high standards."
Bush appears to be playing the war card to get through the economic difficulty. As business historian, John Steele Gordon put it on Brian Williams Show on CNBC, "War, as long as it is fought on someone else's territory is good for the economy." In a highly controversial statement that many observers believe will help to prolong and foment even more strife in the Middle East, Bush said that he was for a Palestinian State but the peace process could not work as long as Arafat was the Palestinian leader and until the Palestinian people had a "market economy". That is just what the Palestinians' need, a U.S.-modeled market economy with companies like - Enron, Arthur Andersen, Adelphia, Global Crossing, Dynergy, Tyco, Qwest, Imclone, WorldCom, Xerox, and Martha Stewart Living Omnimedia - and more crooked corporations to come.
Tom Turnipseed is an attorney, writer and civil rights activist in Columbia, South Carolina. www.turnipseed.net