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Worldcon

“When abuses like this begin to surface in the corporate world, it is time to reaffirm the basic principles and rules that make capitalism work: truthful books and honest people, and well-enforced laws against fraud and corruption. All investment is an act of faith, and faith is earned by integrity. In the long run, there's no capitalism without conscience; there is no wealth without character.”

Thus spoke President George W Bush to Wall Street on 9 July in the wake of the biggest corporate fraud in history as stock markets around the world were reeling from the news that WorldCom, the US phone company, had admitted to a $4 billion hole in its accounts. As WorldCom's share price fell from $60 to $2 it was further revealed that Xerox, the multinational photocopying and printing company had similarly overstated its profits by $billions.
 

At the end of last year energy multinational Enron, caused panic on the world's stock markets when it emerged the company had hidden debts of $9 billion. Other financial scandals have involved Global Crossing, Arthur Andersen, Tyco and Adelphi Communications, prompting many investors and economists to wonder just how deep corporate malfeasance is and whether any company offering shares can really be trusted.

The truth is that there must be thousands of firms out there telling porkies about their profits in an attempt to raise their stock market rating. And there are reasons for this. Because capitalism is a ruthlessly competitive system, each company aims to maximise its share of its respective market and to get the better of its competitors. When a company inflates its profits its share price typically increases. More people are prepared to buy shares in profitable companies and “profitable” companies find it easier to borrow with a view to investing in newer technology that can win them a greater share of profits and undermine the efforts of their competitors. The problems, however, is that future profits are purely guesswork. No one can realistically predict demand (it's not a natural science). And when a company can't meet the expectations of its shareholders, panic sets in, with all concerned running away from the sinking ship with whatever they can carry.

Bush would do well to remember that it is not “truthful books and honest people . . . that make capitalism work”, but the drive to make profit, whether it be through the creation of false needs, warfare, artificial scarcity or planned obsolescence. And if there were “well-enforced laws against fraud and corruption” in the corporate world, Bush himself would never have become president and America's prison population would be twice its present size.

More importantly, however, Bush's speech focused on a few individuals, giving the impression that a few nefarious persons had tarnished the good character of capitalism – a move totally designed to distract from the real nature of the beast. Capitalism is an oppressive and exploitative system in which human needs come a poor second to the requirements of profit, a system that consigns billions to lives to abject misery. Its indifference to the hardship of the real wealth creators is evidenced in the present instance by the fact that while the “honest” bosses at WorldCom have pocketed $millions in the perpetration of their scam, the company now wants to sack 17,000 of its workers; the same workers it encouraged to invest their hard-earned retirement funds in company shares in the full knowledge those same shares would lose value. Prior to the recent scandal these retirement plans-cum-shares shares were worth almost $220 million; at the moment they are valued at $4.4 million. “No capitalism without conscience”, Mr Bush?

Neither was there room in Bush's lecture on corporate ethics to Wall Street for mention of the practices of monopolies and oligopolies, of the market power of the likes of Exxon-Mobile, Ford or Wal-Mart, whose revenues are larger than the national budgets of many countries; whose power is such that even the US government is afraid to curtail their shenanigans. While Bush can lecture Wall Street on corporate “ethics”, given half the chance these bastards would apply for a patent on the very air we breathe. Where there are profits to be had, honesty and conscience, ethics and values are swept under the carpet and trodden upon.

So is the current crisis evidence that the capitalist system is about to come tumbling down? No - production for profit will continue apace and will still be impinging on every aspect of our lives for some time to come as no crisis lasts forever.

What the recent scandals reveal is that corporate greed is endemic to the system and that financial regulators were not regulating all that well. Indeed, it is possible that eventually US Capitalism PLC may come away from this fiasco stronger than before, with corporations (in the wake of Bush's speech and the now widespread demands for tighter regulations) winning more confidence from investors.

So put away the bunting and party-poppers and calm down. Capitalism may be going through one of its periodic crises but it is going to have to be dismantled the hard way – with a class conscious majority bringing about its end by democratic means. Because in the long run, that is the only storm capitalism cannot weather.