A rchive Date
[ 30-06-2002 ]
Category
[ International Relations ]
sub-Categoy
[ U.S ]
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[http://www.chron.com/cs/CDA/story.hts/editorial/outlook/1473597
Greed springs eternal in corporate meltdowns
By JOHN MICKLETHWAIT and ADRIAN WOOLDRIDGE
June 29, 2002, 12:04PM
HARDLY a day goes past without a new corporate scandal, each one bigger than the last. Last week we were just recovering from the news that Rite Aid had fraudelently overstated its earnings by $1.6 billion when we learned that WorldCom had performed the same trick to the tune of $3.8 billion. Even Martha Stewart, that goddess of the American hearth and home, stands accused of supping on a diet of corporate corruption.
Professions like accountancy that were once regarded as the very embodiments of solid professionalism are becoming synonyms for corner-cutting - or worse. Companies that were once celebrated as pioneers of America sparkling new economy are becoming bywords for greed.
As one journalist wrote in her expose of a well-known energy company, its profits were the product of "fraud, deceit, special privilige, gross illegality, bribery, coercion, corruption, intidimidation, espionage or outright terror." Actually, that wasn't a description of Enron but Ida Tarbell's castigation of John D. Rockefeller's Standard Oil a century ago. Contrary to much of the current hand-wringing about "the crisis of American capitalism," there's nothing new about corporate misbehavior, nor about society's subsequent desire to reform capitalism. The two have followed each other throughout history: first the abuses, then the rules.
Corporate scandals have been with us ever since the first chartered joint-stock companies emerged in Tudor times. Looking for greedy executives? Try the "nabobs" of the East India Company, who built some of Britain's finest homes with money from Bengal. Looking for perfidy on Wall Street? Try the second half of the 19th century when rogues such as Daniel Drew manipulated the stock of railroads like the Erie. Looking for suspect accounts? In the last quarter of the 19th century more than 700 American railroad companies went bankrupt.
In some cases the echoes of the current crisis are uncanny. What, one wonders, would Kenneth Lay of Enron make of the career of Samuel Insull? Insull rose from poverty to become one of the most admired businessmen of the roaring 1920s, making Chicago Edison into the base of a gigantic pyramid of utility and transportation companies. At one point he held 65 chairmanships, 85 directorships and 11 presidencies. But the great crash of 1929 brought this pyramid tumbling down around his ears. Insull fled the country, roundly denounced as a symbol of corporate greed. He was hauled back to America for trial and, surprisingly, acquitted.
As we try to make sense of the current corporate meltdown, history suggests three important lessons. First, many of the previous scandals have, by most measures, been rather more serious than today's fuss. Second, the longer-term significance of the scandals isn't the wrongdoing of the villains but the remedy society applies. Third, the backlash against corporate malfeasance can sometimes do more damage than the malfeasance itself.
Is Enron a substantial scandal? In terms of its immediate damage, the answer must be no. The collapse of the energy company undoubtedly caused huge grief for the people who were bilked out of their life savings; it's also weakened the stock market and maybe even slowed the economy. But it hardly resembles the carnage after the collapses of London's South Sea Co. or Paris' Mississippi Co. in 1720. There's been no queue of banks announcing that they're closing their doors - as there was after Black Thursday, Sept. 18, 1873, when the financial empire of Jay Cooke, one of Wall Street's greatest speculators, collapsed. The energy market hasn't ground to a halt - as Wall Street did, for 10 days, after the demise of Cooke's company.
From this perspective, Enron's certainly an opportunity to instigate some long-overdue corporate reforms. It was always a recipe for disaster that accountants were allowed to do consulting. It was always a scandal that chief executives were allowed to design their own remuneration packages. Despite screams from the business lobby, new laws to restrict such abuses make sense. But there are practical reasons for caution. Many of the most heinous alleged crimes - if accounts really were falsified or if brokers really did mislead their clients - are covered by existing laws.
Above all, America shouldn't delude itself into thinking that it can set up a structure that abolishes greed or skullduggery from the business world. Enron wasn't the first corporate scandal the world has seen, and it certainly won't be the last.
Micklethwait is U.S. editor and Wooldridge is Washington correspondent for the Economist. They are the authors of The Company: A Short History of a Revolutionary Idea, to be published next year as a Modern Library Chronicle
 World Fact Book (CIA)]
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