Corporate Responsibility! What a Concept!

Essays on the political fallout from the latest wave of executive fraud and the collapse of the artificial economy

Editor’s note: As this issue went to press, President George W. Bush had just signed into law a corporate-fraud bill that was hammered out by the Senate and the House of Representatives last week. The bill creates a regulatory board to oversee the accounting industry and punish corrupt auditors. It also establishes new standards for prosecuting wrongdoing and new protections for corporate whistleblowers. A more detailed analysis of this bill and its likely implications was not available for this issue; we hope to provide one in the very near future.

Already, however, commentators have pointed out that Bush signed the bill under intense political pressure, as he had opposed some of its provisions as recently as three weeks ago. Congressional Democrats already have characterized the bill as a good start that leaves much work yet to be done in preventing corporate crime. And given the current administration’s philosophical opposition to greater regulation of business, it is not yet clear whether there will be any commitment to enforcing the new standards.

Two of the following essays address the prospects for greater corporate responsibility under this administration in light of Bush’s deep connections to industry and his own past involvements in questionable business practices. Another looks back at the mass media’s complicity in hyping the “New Economy” and the stock-market bubble of the late ’90s, and a fourth suggests that the bursting of that bubble actually is the silver lining to the current spate of corporate scandals.

In the Boardroom

Bill Clinton used to take a lot of abuse, especially on talk radio and late-night TV, as “Slick Willie.” The guy did slip out of some amazing jams. Since the Enron scandal, George Bush has been doing his own version of the Slick Willie. He wants to get as far away as he can from his old friend and corporate backer, former Enron CEO Kenneth Lay. And he would like most of us to forget how he was elected with an economic plan for the nation that not only was modeled on, but actively celebrated, the Enron style of deregulated, no-accountability, fast and loose capital accumulation. To pull it off, he’ll need to be slicker than Bill Clinton ever was.

The disgrace and dismemberment of Enron, and other corporations that have fallen in its wake, leave the Bush administration with the following dilemma: whether to move to the center, compromise free-market economic theories and reregulate, or to do just enough to restore the investing public’s trust in the economic markets and find something else to occupy the front pages of the nation’s newspapers—an invasion of Iraq, for example.

It’s too bad that the light shed by the Enron scandal probably won’t shine bright enough to illuminate the decadeslong fight by corporate elites and their friends in Congress to overturn the post-Depression New Deal reforms and to eliminate, as much as possible, government oversight of the economy. Ronald Reagan set the tone in the early ’80s with his “trickle-down” theory, which posited that allowing the unfettered accumulation of wealth by a few would benefit the rest as the money was invested and the economy expanded. In the popular consciousness, this is remembered as the “Greed Is Good” era. That bubble burst on the first President Bush, and a somewhat less blatant eight years followed. That was too tepid for the second Bush administration, which brought its own version of Reaganomics to Washington, starting with the regressive tax cut, Bush’s first big economic gift to the wealthy. But even that was heralded during the transition by two events that particularly demonstrated Bush’s loyalty to the corporate boardroom. Both concerned promises about the environment.

The first was the Austin, Texas, invitation-only roundtable for business executives. The discussions at this closed-door session are still secret. But when the veil was momentarily lifted for a photo-op, there were then-General Electric CEO Jack Welch and then-Enron CEO Kenneth Lay, happily cozying up to the President-elect. Yes, Welch subsequently suffered one of the few defeats of his career when the federal Environmental Protection Agency ordered his company to clean its poisonous PCBs out of the Hudson River. But Bush and EPA administrator Christie Whitman have set out to rewrite the federal Superfund law, the program used by the EPA to help pay for toxic site cleanups.

The Superfund program, developed in the wake of New York’s Love Canal disaster, not only aimed to recover costs from the polluters responsible for specific hazards, but also used a system of fees collected from companies engaged in the kinds of work that, when not properly managed, leads to the release of toxic hazards into the environment. Under congressional Republican leadership, no money has been appropriated for the Superfund program in more than five years. Now Bush is passing that cleanup bill on to us, saying that the fees are an unfair, government-imposed tax on the corporations. If he succeeds, there will be no money in the Superfund. Sites where the specific polluter responsible cannot be found will be cleaned up, if they are cleaned up at all, at taxpayers’ expense.

The second was the administration’s energy plan, also developed behind tightly closed doors. The minutes of the meetings and the participant lists remain secret, despite the efforts in court of both congressional committees and environmental organizations to get access to the information. Those meetings, of course, were chaired by Vice President Dick Cheney, a former oil company CEO. Enron’s Lay was a major participant. Some details of this strategy have become clearer as the Bush energy policy has emerged. The administration appears to have concluded, before Sept. 11, that the United States must increase its dependence on fossil fuels, especially Saudi Arabian oil and Appalachian coal, develop new oilfields in pristine Arctic wilderness areas, revitalize the nuclear power industry, and continue to free energy companies, like Enron, from government oversight. Also part of the plan is to downplay the dangers of, and the American corporate responsibility for, the pollution that causes global warming.

How is the policy going so far? By popular will, they were stymied in the Arctic for now, though as environmentalists know, we have to win these battles over and over again, because we can only afford to lose them once. The Saudi connection has come under some increased scrutiny since the terrorist attacks, but there is no sign that the Bush administration’s—and Bush family’s—ties to the House of Saud have weakened.

The administration’s coal-burning initiative is being strongly opposed by environmentalists because of its ties to acid rain and the asthma epidemic. At least Cheney’s former company Halliburton has diversified and is unlikely to suffer. According to a recent report in The New York Times, Halliburton’s connections with the Pentagon netted it more than $1 billion in business last year. Since Sept. 11, a subsidiary of Halliburton has picked up contracts to build the prison for detention of suspects at Guantanamo Bay naval base in Cuba, and, is deeply involved in supplying the Khanabad Air Base in Uzbekistan.

This administration’s signature is the linkage of unrestrained corporate profit to environmental depredation, exploitation of the world’s petroleum and other energy resources, and undeclared, unlimited, and permanent war—all overlaid with a blanket of secrecy unparalleled since Richard Nixon’s day. Congressional rhetoric and window-dressing remedies aimed at reforming corporate accounting practices may stem some of the more dramatic abuses, but will not touch the fundamental problems.

—Jeff Jones

Jeff Jones is communications director for Environmental Advocates in Albany. He can be reached by e-mail at: jjones@eany.org

Bush and Corporate Crime: Been There, Done That

This past Fourth of July, I was glad to see that George and Martha were in the media spotlight together. No, not the Washingtons, the first First Couple, but George W. Bush and Martha Stewart, a symbolic First Couple of insider capitalism. Thanks to WorldCom (which overstated pretax profits by a whopping $3.8 billion last year), Tyco International (which was run by executives who allegedly misused company money and covered up improper payments to themselves), Xerox (which overduplicated its earnings), Stewart (who stands accused of insider trading), and other alleged corporate malfeasants, Bush’s own less-than-stellar corporate past has been revived.

Al Gore may be thinking, “Hey, it’s a little late for this.” But Bush’s record as a private businessman—a subject few journalists bothered to explore during the 2000 campaign—is now deemed relevant, as Corporate America (Bush’s home district) turns ugly. One of Bush’s fishiest moves as a businessman who failed upward in the oil industry occurred in 1990, when Bush was on the board of directors and the audit committee of Dallas-based Harken Energy. Harken had bailed out Bush four years earlier by buying his own down-and-almost-out oil venture. In that deal, Bush received a hefty dose of Harken shares. In June 1990, Bush dumped over 212,000 shares and bagged $848,000. He did so at a time when Harken was slipping but had hidden losses by selling a subsidiary, more or less, to itself in a deal the Securities and Exchange Commission later ruled a phony transaction. Moreover, Bush failed to disclose his stock sale right away, as the SEC required, and, instead, notified the SEC eight months after the federal deadline.

Bush skated. An SEC investigation concluded without penalties or charges, but the SEC did unearth other instances of late filings by Bush. Those skeptical about these things might want to note that the SEC general counsel at the time, James Doty, had earlier represented Bush during his purchase of the Texas Rangers baseball team—a deal that Bush partly financed with the proceeds of his Harken stock dump. And during that SEC inquiry, Bush was represented by Robert Jordan, who had been a partner of Doty at the Baker Botts law firm. Jordan is now Bush’s ambassador to Saudi Arabia. Whether Bush broke any laws, the Harken deal stunk. (And there’s more to it than the cursory description I’ve provided.)

If Bush had not engaged in insider trading, he certainly benefited as an insider. At the least, his financial ass was saved by Harken because of his DNA and his father’s job (vice president). Yet the Harken mess has never much haunted Bush in public—until now. On July 2, New York Times columnist Paul Krugman recalled Bush’s Harken ride and observed that Bush’s Harken trade had netted him about four times the cash Martha Stewart saved via her suspicious transaction. Krugman went on to opine that Bush’s “administration is uniquely well qualified to chase after corporate evildoers” because Bush has “firsthand experience of the subject.”

Molly Ivins and others have been writing about Bush’s Harken dealings for years. (I’ve been on the case for months.) But when a Times columnist throws such a punch, things happen. In response to Krugman’s wallop, reporters asked Bush about Harken when he was traveling in Milwaukee. “It’s been fully vetted,” the president snapped. “Any other questions?” (It’s amazing how quickly this down-home boy from Texas can start talking like a defense lawyer.)

Next, Bush’s chief mouthpiece Ari Fleischer got into the act, claiming that the delay in Bush’s filing with the SEC was due to a “mix-up” by Harken lawyers. The problem is, when Bush was running for governor in 1994, he explained the late filing by blaming the SEC for having lost the forms (the corporate executive’s version of “the dog ate my homework”). So which was it? Lost forms or lousy lawyers? Or, to be less delicate, when was Bush not telling the truth?

In a delicious line, a Times news story reported, “Mr. Fleischer could not completely explain the inconsistency.” At a press conference, Fleischer, referring to Bush’s 1994 response, said Bush was dealing with “the best explanation” available at the time. What a wonderful phrase. Next time you get caught engaging in shady business, make sure you describe your excuse as “the best explanation I have available at this time.” (Are Martha Stewart’s attorneys taking notes?)

This all came at a convenient time for Bush, for he was preparing to deliver a speech on Wall Street calling for (somewhat) tougher treatment of felonious corporate execs. But Bush already had delivered a speech on corporate responsibility in March. That talk was a response to the Enron scandal. Since the March address did not do the trick in persuading Americans that Bush is as outraged by corporate misbehavior as Ralph Nader is, he decided to share his anger once more. But in the run-up to the Wall Street speech, Business Week reported that Bush was unlikely to OK a major boost in spending for corporate crime enforcement or to embrace stringent reforms, such as creating more distance between corporations and their auditors and separating investment bankers and analysts. He was, though, expected to repeat his call for corporate insiders to report their stock trades within two days. It does take chutzpah to be president. (Which reminds me: when is Bush going to talk again about privatizing Social Security?)

The bottom line of the recent business scandals is the old complaint that the rules ain’t the same for corporate high-flyers as for everyone else. (Try selling part of your house to yourself in order to lower your mortgage payments.) And Bush is not a fellow well-positioned to deal with this problem. After all, he is president because of insider capitalism (in his case, call it nepo-capitalism). Harken rescued him from the market because he had political (not financial) worth. He was able to buy a baseball team—and put a relatively small amount of money into the deal—because of his inherited social and political connections. The team succeeded because Bush and his partners were able to convince friends in the state Legislature to pass a measure establishing a sports authority that used the power of taxation and eminent domain to grab land and build a stadium for the Rangers. And managing that team was the only accomplishment Bush had to brag about when he ran for governor in 1994. Without insider connections, where might he be today?

The conceit of the business class in the 1990s—or was it self-serving propaganda?—was that with the expansion of 401(k)s and the increase of small investors playing a forever bullish market, anyone could be an insider, in the sense that anyone could participate in (and profit from) the wonders of Wall Street. These days it’s common for financial analysts on cable news shows to say that small investors are screwed, for there’s no way for them to know if any particular corporation is cooking its books or being managed by executives who grab millions while they steer the business into the rocks.

Invest in what you know, they advise. Well, who in Kmart-land knows what’s really going on in the boardroom or accounting department of a transnational company? An average Joe or Josephine looking for an investment might find Martha Stewart sheets lovely and believe in her product line. But how can she or he learn what the lady of the house is really up to?

Overnight, Stewart became a symbol of the me-first corporate executive. Because she may have traded on a social relationship to avoid a $200,000 loss in her holdings of ImClone, her own company lost a third of its value. But it’s not just this one transaction for which she deserves a slap. Stewart managed to bill her company $2 million a year for using her homes in photo shoots, while the firm was eking out modest profits. But, then, why shouldn’t corporate executives place their own well-being (and retirement plans) ahead of that of their stockholders and employees? Isn’t that the market at work?

There is no way Bush can get a handle on a systemic corporate crisis of serious magnitude. His line, so far, has been that there are only a few “bad apples” out there. (Unfortunately, they just happen to include some of his closest supporters at Enron.) Perhaps all that is necessary is for Bush—as he likes to do with foreign leaders—to look into the soul of each Fortune 500 CEO and tell us whether he or she has a good heart. What might he see when he gazes into the eyes of Martha Stewart? That is, beyond the reflection of a fellow beneficiary of ruling-class rules? And would you believe him if he pronounced her a “fine person” and issued a buy order?

—David Corn

David Corn is Washington editor of The Nation and a frequent contributor to AlterNet.org, where this article originally appeared.

This Just In: Bull Market Not Forever After All

With the “New Economy” now in shambles, it’s easy for media outlets to disparage the illusions of the late 1990s—years crammed with high-tech mania, fat stock options and euphoria on Wall Street. But we hear very little about the fact that much of the bubble was filled with hot air from hyperventilating journalists.

Traveling back on a time machine, we would see mainstream reporters and pundits routinely extolling the digitally enhanced nirvana of huge profits and much more to come. The New Economy media juggernaut was not to be denied.

Sure, journalists occasionally offered the common-sense observation that the boom would go bust someday. But it was a minor note in the media’s orchestral tributes to the New Economy. And the bullish pronouncements included an awful lot of hyped bull.

Five years ago, Business Week’s July 28 edition was scorning “economic dogma” for its failure to embrace the glorious future at hand. “The fact is that major changes in the dynamics of growth are detonating many conventional wisdoms,” the magazine declared in an editorial that concluded: “It is the Dow, the S&P 500, and NASDAQ that are telling us old assumptions should be challenged in the New Economy.”

A column by economist Lawrence Kudlow, published on July 24, 1997, in the very conservative Washington Times, rang the same bell: “Actually, information age high-tech breakthroughs have undreamed of spillovers that impact every nook and cranny of the new economy.” Kudlow was upbeat about “even higher stock prices and even more economic growth as far as the eye can see.”

In 1998, the July 20 issue of Time was one of many touting the economic miracles of the Internet. “The real economy exists in the thousands—even tens of thousands—of sites that together with Yahoo are remaking the face of global commerce,” Time reported. The magazine could not contain its enthusiasm: “The real promise of all this change is that it will enrich all of us, not just a bunch of kids in Silicon Valley.”

When the last July of the 20th century got underway, Newsweek was featuring several pages about the national quest for riches: “The bull market, powered by the cyberboom, is a pre-millennium party that’s blowing the roof off the American Dream. It’s just that some of us can’t seem to find our invitations. And all this new wealth is creating a sense of unease and bewilderment among those of us who don’t know how to get in touch with our inner moguls.”

Meanwhile, insightful analysis of the New Economy received scant mass-media exposure, but it certainly existed. While Newsweek was fretting about “inner moguls,” for instance, the progressive magazine Dollars & Sense published an article by economist Dean Baker warning that the country was in the midst of “a classic speculative bubble.” A crash was on the way, Baker pointed out, and it would financially clobber many working people.

Writing three years ago, with the stock market near its peak, Baker anticipated grim financial realities: “Many moderate-income workers do have a direct stake in the market now that the vast majority of their pensions take the form of tax-sheltered retirement accounts such as a 401(k). These plans provide no guaranteed benefit to workers. At her retirement, a worker gets exactly what she has managed to accumulate in these accounts. Right now, a large percentage of the assets in these retirement accounts is in stock funds.”

Overall, Baker contended, “the post-crash world is not likely to be a pretty one. The people who take the biggest losses will undoubtedly be wealthy speculators who should have understood the risks. The yuppie apostles of the ‘new economy’ will also be humbled by a plunging stock market. But these people can afford large losses on their stock holdings and still maintain a comfortable living standard.”

Baker concluded his in-depth article by predicting a foreseeable tragedy that major media outlets rarely dwelled on ahead of time: “The real losers from a stock market crash will be the workers who lose most of their pensions, and the workers who must struggle to find jobs in the ensuing recession. Once again, those at the bottom will pay for the foolishness of those at the top.”

Now that the bubble has burst, most of the hot air about the New Economy has dissipated. This summer, the media atmosphere is cool to scenarios for getting rich with shrewd investments. Too late.

—Norman Solomon

Norman Solomon’s latest book is The Habits of Highly Deceptive Media. His syndicated column focuses on media and politics.

Get Real: Why the Stock Slump Is Good News

Across the country, it is finally sinking in. There really was a bubble in the stock market, and it has now burst. This is not like Tiger Woods having a bad day at the British Open. He may rebound to his past glory, but the stock market will not.

The accounting scandals and other corporate abuses are not the cause of the crash, but merely a trigger for a long- overdue return to more realistic stock prices.

This crash was both predictable and predicted. Economist Dean Baker was the first to work out the arithmetic of the problem (still available at www.cepr.net). At the height of the bubble, he pointed out that stocks would have to lose more than half of their value in order to restore a sustainable relationship between stock prices and potential profits. The broad market is now down about 50 percent from its peak.

This is the beginning of a new chapter of American economic history: Call it the post-bubble era. We will be returning, at a pace that is difficult to predict, to an economy in which the stock market plays a more modest role.

This is a change for the better. Contrary to popular misconception—which is reinforced daily in the business press—the health of the stock market is not the same as the health of the economy. And stocks have even less to do with the living standards of the vast majority of Americans. One way to see this is to look at our history. The Dow took more than 30 years to reach its 1929 (pre-crash) level, and it took even longer for people to regain confidence in the market. In the 1970s, less than 20 percent of all households owned any stock. Relatively little capital for investment was raised in the stock market. Nonetheless, the economy grew quite rapidly from 1946 to 1973—the first half of the post-World War II era—and most important, it was a broadly shared prosperity. The real (inflation-adjusted) median wage grew by about 80 percent.

From 1973 to 2000—the second half of the post-World War II era—stock ownership spread to almost half of all households, with most of the increase occurring during the 1980s and 1990s. During this time, the real median wage increased by about zero.

The run-up in stock prices contributed to the most massive redistribution of income in American history, from the poor, working, and middle classes to the rich. That’s because half of all households still don’t own stock—even counting retirement accounts—and most of the other half own relatively little (less than $25,000).

All this is not to dismiss the personal tragedies of millions of Americans who have lost retirement savings in the crash. They have a right to be angry at the corporations that deceived them, and the politicians who aided and abetted the fraud while they cheered the growing bubble as a sign of economic progress.

And in the short run, the evaporation of more than $7 trillion dollars of wealth will slow the economy, since the people who lost that wealth will consume less. Many corporations may also retrench, cutting investment and employment.

The government can address these problems by replacing private spending with public spending, as much as this is necessary to keep the economy growing and unemployment from rising. We could modernize our railroad system, as Senator Hollings has proposed. The Federal government could also help the state governments avoid spending cutbacks—California alone is facing a $24 billion shortfall—that could drive the national economy back into recession.

But we should never be so foolish as to confuse the recovery of the stock market with economic recovery, or with the public interest. The end of this and other illusions is the silver lining of the stock market’s demise. Privatization of Social Security is now dead. Millions of people who had formed new identities as “owners” of corporations—or even day traders—will now see that their economic future depends on wages, salaries, and benefits. Americans may begin to be outraged that the majority of the labor force has failed to share in the gains from economic growth for nearly three decades.

They may even see themselves as citizens entitled to universal health care, as in other developed countries. In the post-bubble era, economic and social progress will finally be back on the political agenda.

—Mark Weisbrot

Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, D.C.