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New challenges to U.S. corporate abuse William Pfaff
PARIS Those who believe that the mutation of American capitalism during the past two decades, and the takeover of American politics by corporate money, have done more damage to the United States than the terrorists of Al Qaeda will ever do, now have encouraging news: A balancing counterpower, skewed as it may be, is at work. . There is an unexpected challenge from U.S. state governments to abuses in corporate business and the stock markets, while a new challenge to the business standards of U.S. international corporations is coming from European regulators. There already is popular pressure on Washington to act against scandalous abuses of power and exploitation of consumers and stockholders by U.S. corporations. But whether this administration and this Congress are capable of producing serious reform is open to grave doubt. Corporate money and corporate lobbies have immense influence over Congress, and major figures in President George W. Bush's administration are, or have been, deeply involved with corporations responsible for some of the worst abuses. Demands for regulatory reform and legislative remedies already run into the defenses thrown up by corporate and political interests calling for faith in the willingness of corporate management to reform itself, reliance on corporate and accountancy self-regulation, and trust in market mechanisms. Disregarded, or effectively denied, is the fact that the demands of inadequately regulated markets are what produced the worst abuses: rigged accounts and complaisant auditors' reports; dishonest company statements with dissimulated losses and fictitious profits; looted pension funds; concealed insider loans to managers; and abuse of client and consumer confidence, all in order to inflate stock values and enrich executives. No wonder the American stock markets are in disarray. Who wants to invest in these circumstances? The president, vice president and cabinet officers face congressional investigation of their profitable past connections with such corporations. Major brokerage firms and banks are accused of duplicitous investment counsel and exploitation of customers. Michael Greve of the conservative American Enterprise Institute writes that "massive conflict of interest" in the brokerages surprises no "reasonably informed investors." The insiders knew. He adds that the investment community is nonetheless rattled by the fact that the latest attack unexpectedly came from the New York State attorney general. Investment firms are used to dealing with the Securities and Exchange Commission, which is part of their community - and apparently part of the problem. The SEC and Congress are dismayed at the state intervention that forces the hand of the federal government. The state attorney general says he is beholden to the public, not to business. New York is forcing Merrill Lynch to pay $100 million in settlement of the state's complaint of criminal misconduct. Washington is concerned that if other states follow New York's lead, regulatory chaos could result. But as Greve acknowledges, "federal regulation has in fact failed investors." And now the European Union has become a player. Its own anti-trust regulations are applied to American companies doing significant business in Europe, and last year the EU blocked the merger of General Electric with Honeywell on anti-trust grounds. Now the EU is demanding new accounting standards from American companies active in Europe. A proposal to be adopted this week by EU ministers would require American companies listed on European stock exchanges to adopt the so-called International Accounting Standards required of European companies. These are much tougher than the measures used in the United States. They are also fundamentally different in that they impose a "principles" standard, which requires the accountant to certify that he or she is giving a true account of the company's financial situation. The American system is merely a compendium of rules - like the U.S. tax code - and like the tax code, it invites evasion and manipulation to avoid telling the truth about the financial situation of the company. So long as American politics are governed by political campaign contributions - which the Supreme Court has disastrously interpreted as the exercise of protected free speech - corporate interest can block serious business and market reform in the United States. The people need help. Now they are getting some, from unexpected sources. International Herald Tribune Los Angeles Times Syndicate International |