Corporate scandals reveal depth of economic crisis
Earlier this year the American ruling class proudly announced the end to the post-September 11 recession it had only recently acknowledged. Very reluctantly, faced with worsening economic statistics, the US bourgeoisie admitted its economy had in fact been in recession since March of 2001. Nevertheless, soon after this sombre admission, the American bourgeoisie precipitously declared the end to the ‘shortest recession in American history’ and announced the beginnings of an economic recovery. Since then, we have seen corporate bankruptcies (including the continuing circus surrounding Enron, which, at the time, was the largest bankruptcy in US history), spiralling redundancies and stock market turbulence which clearly give the lie to health of the US ‘model’.
The impact has already spread through the stock markets of the world. This profound acceleration of the economic crisis of capitalism clearly stems directly from the very heart of the capitalist system, not from the peripheries. Previously the ruling class could say that different aspects of the crisis were expressions of the immaturity of the ‘tiger’ economies, of the difficulties of Russia adapting to ‘market forces’. Japan and other ‘unenlightened’ countries were admonished for their supposedly unique lack of ‘correct’ banking practices (i.e. correct accounting).
The continuing trouble on Wall Street, layoffs that never seem to stop and the American economy’s faltering international competitiveness has made all the pronouncements about the advantages of the ‘American way’ of managing capitalism sound ever more hollow and ridiculous. The WorldCom debacle was the final straw: the American bourgeoisie has had to admit that it may have been too hasty in concluding that the recession was in fact over. As for the boasts about the ‘American model’, there is embarrassed silence.
Furthermore, the damage inflicted by the scandal at WorldCom has precipitated a major crisis of confidence in Wall Street which has spread immediately to the other key international stock markets � London and Tokyo. The stock market index in London has fallen to a level lower than when Labour first took office, destroying billions of pounds worth of ‘value’. Although this value wiped off shares all around the world is ‘only’ paper value, it nonetheless has real effects both on the wider capitalist economy, and even directly on workers since it adds enormously to the problem of the funding of pensions schemes (in the next issue we will deal with this attack in more detail) and insurance policies.
The impact of the Enron and WorldCom accounting scandals on the bourgeoisie is not because the capitalists who speculate on these markets are morally outraged by the massive fraud carried out by WorldCom, rather, they are horrified by the prospect of yet more WorldComs, and even pillars of the ‘old economy’ such as IBM, declaring accountancy errors and exposing the cracks in the edifice of capitalism - an edifice that is held up by a mountainous scaffolding of debt. If new proposals being discussed in Europe for making accountancy practices more ‘transparent’ � i.e. proposals to reduce the amount of actual lying involved in the production of company accounts � were to be adopted, then billions more dollars would be wiped off the value of US companies in particular, because of their very widespread use of the financial technique of stock options.
This is not an expression of a merely contingent situation for capitalism, which can simply be overcome by belatedly instituting a new policy of ‘honesty’ in company reporting. The whole period of rapid ‘growth’ in the world economy � especially the US economy � during the nineties has, as the ICC has consistently pointed out, been built on sand. The implosion of the technology bubble was the first direct, open, confirmation of this. The present loss of confidence amongst the bourgeoisie in their own capital markets simply underlines the incredibly shallow, tenuous nature of all this supposed ‘growth’.
WorldCom, the second largest telecommunications provider in the US with extensive foreign operations, demonstrates - even more dramatically than Enron - the fragility of the current state of the capitalist economy. Recent revelations have shown that since January 2001, WorldCom has systematically hidden more than $3.8 billion in expenditures by classifying normal operating expenses as ‘capital expenditures’. This has allowed the company to spread these costs out over a number years and thus give the impression of making a healthy profit, while in reality it is currently saturated with more than $30 billion in debt. From a high, three years ago, of $64.50 per share, WorldCom stock now sells for less than a dollar. Should WorldCom file for bankruptcy protection, a move a number of analysts see as likely, it would surpass Enron as the largest bankruptcy in American history. As a result of this fiasco, workers have seen their retirement stock portfolios hammered as they are revealed for what they really are: worthless pieces of paper laying claim to fictitious wealth that never really existed.
In these circumstances, how can the bourgeoisie have confidence in the reporting of any of its companies? Lacking this confidence, how does the capitalist know what he is investing in when he hands over his money for shares? In the casino economy, as the ICC has dubbed it, money chases money, with ‘profits’ fuelled by endless speculation. While this underlying reality will not change, the Enron revelations followed so soon by the WorldCom affair, shows even the most hardened ‘bull market’ investor that the reality is simply a pack of cards, waiting to fall. And the bourgeoisie do not invest in order to lose their money.
At the time of the Enron revelations, the American bourgeoisie smoothly tried to play off the disaster as the workings of a few corrupt executives and hyped the need for closer government regulation of corporations. This time around the bourgeoisie has once again tried to play the ‘few corrupt businessmen’ card, promising criminal prosecution of those responsible. Nevertheless, what this ‘scandal’ really reveals is not the rapacious appetite of a few unscrupulous corporate bigwigs, but the utter rot of the capitalist economy after thirty years of open crisis, an economy in which the illusion of health has only been maintained through shrewd accounting manipulations, worthless speculation and ever growing oceans of debt. Already, the WorldCom revelations have been followed by accusations of accounting irregularities at Xerox that overstated company revenue by $6.4 billion. Thus, one of the supposed mainstays of the United States’ post-Second World War economic prosperity finds itself in deep trouble. In the coming period there will undoubtedly be more such ‘scandals’ as the crisis strains the ruling class’s ability to cover up the deepening crisis eating at its very heart.
As capitalism’s crisis intensifies and the working class is faced with accelerating attacks on its working and living conditions (WorldCom already plans to slash a fifth of its workforce, with more layoffs expected), workers must not be taken in by the bourgeoisie’s ‘anti-corruption’ propaganda. All this propaganda emanates from the capitalist state, which tries to give the impression that if it intervenes in the situation then the turmoil in the markets will be smoothed over. As even some capitalist commentators have observed, the state, far from being the least disposed to engage in the manipulation of figures, is at the leading edge of this practice � for instance the constant ‘redefinition’ of the unemployment figures in all countries. In Britain Labour has continued with this process in the same line as the Tories did. The US state tried to mask the reality of the current open recession until it could no longer avoid it. And, in all countries, the state is the biggest liar and manipulator of all.
Although the state must and will intervene in the situation because it is the final bastion of the bourgeoisie and responsible for keeping the economic crisis under some kind of control, in the final analysis, the bourgeoisie cannot stop the crisis, only slow it down. The present emergence of the crisis in an open way is the best evidence of this. It is this kind of open expression of the crisis at the heart of its system that the bourgeoisie has been struggling to avoid for the last ten years, even though it is fundamentally aware that conjuring tricks cannot work for ever. The key reason for this is that the bourgeoisie is aware of the impact this can have on the working class. The economic crisis � along with war � is a key factor in the long term potential for the development of working class consciousness, because it reveals the bankruptcy of the entire capitalist system.