U.S. business after scandals

B. Herry-Priyono, Researcher, Alumnus, London School of Economics, herryprb@lse.ac.uk

Jeffrey Skilling, Enron's disgraced former chief executive, is an example of business absurdity in a runaway economy. When he was still a student at Harvard Business School, he was asked in a classroom debate what he would do if his company were producing a product that might harm or kill its customers. According to his former professor, Skilling replied: "I'd keep making and selling the product. My job as a businessman is to maximize return to the shareholders. It's the government's job to step in if the product is dangerous" (The Guardian, July 28, 2002).

On Aug. 14, 2001, he resigned abruptly. The ensuing days witnessed a wave of scandals engulfing Enron, Tyco, Adelphia, Global Crossing, Xerox, WorldCom, Disney, Imclone, and Merck, which is unlikely to be the last. One year after, Aug. 14, 2002, what Skilling said in that classroom had become a self-fulfilling prophecy.

On that day, the bosses of 695 listed U.S. companies with annual revenue of more than US$1.2 billion were summoned by the Security and Exchange Commission (SEC) to swear by their financial statements or admit to problems. By Aug. 29, senior executives of all 14,000 firms listed in the U.S., including those based overseas, had to certify their accounts.

A wave of corporate reform is being launched. It focuses on the quality of disclosure by preventing various harmful conflicts that have been the roots of market corruption, fraud and the recent bankruptcies. Paul O' Neill, the U.S. Secretary of Treasury, declared that business honesty is "the new patriotism". Whether the impact will be mild or strong is a question that begs answers.

In the context of today's globally runaway economy, the enfolding events leading to the present corporate reform seem to say less about patriotism than about the flaw in the heart of economic neo-liberalism.

"Patriotism" surely comes from the Latin word patria: The homeland, both as political territory and community. The call to "patriotism" is perhaps sheer rhetoric. But it is also a form of admission -- that an economic system sundered from the survival of most members of a political community is not viable. This is a strong self-criticism coming from the citadel of neo-liberalism.

Classical political-economy conceives that economic production is founded upon the inseparable working of three factors, i.e., land, labor, and capital (money). Regardless of the controversy over this issue, economic globalization is none other than the separation of "financial capital" from its links with "land" and "labor". Land (patria) is immobile. And labor? We need only to read these day's newspapers to know that strict regulation is heavily enforced on the movements of labor. The tragedy of Indonesian migrant labors in Nunukan, East Kalimantan is a direct result of the strict regulation of labor by Malaysian government.

Speaking metaphorically, the sundering of financial capital from its link with labor and land, or patria, is like the escape of a wild tiger from its cage. He may look natural, strong, powerful and formidable, for he is being freed from any constraints to be predatory. So is the case with financial capital. The sundering of financial capital from patria and labor is a dramatic expansion of the power of financial capital. That is why we witness almost everyday that labor and land have increasingly become toys in the hands of capital owners.

Financial capital has become a ghost without patria. "Without patria" can only mean that the working of financial capital is no longer tied to the survival of a population or a political or cultural community. In this neo-liberal arrangement, whether labor suffers from mass lay-off or starvation, or whether land is increasingly concentrated in the hands of a few, become irrelevant issues to the owners of financial capital.

It is interesting to compare this with the prerequisites of a healthy society. A healthy modern society is constituted of the balance of three societal forces -- the working of market, of public agency (government) and of community. What has been taking place in the last three decades or two is none other than the escape of "market" from "public agency" and the survival of "community". It comes as no surprise that the result is a series of scandals at the heart of laissez-faire itself. What is now taking place is that the community and public agency return to haunt the radical laissez-faire.

Already in 1944, a Hungarian economic thinker, Karl Polanyi, gave a warning in the now classic book, The Great Transformation. Market will be the ingenuous device for economic transaction if, and only if, it is not sundered ("disembedded" in Polanyi's word) from the other institutional fabrics of human survival such as land and labor.

From his close reading of history, he discovered that the crusade done by capital owners to colonize (marketize) the other fabrics of society is doomed to fail, for society is more than just a market mechanism. That is why, every time free-marketers strive to expand the logic of laissez-faire to the other non- market spheres, protective counter-movements emerge to reembed the working of market into the existing fabrics of society. Polanyi calls it "double movement".

The sequence of protectionism in the 1960s and 1970s, radical deregulation in the 1980s, bubble economy in the 1990s, a series of major crises at the end of 1990s, business scandals, followed by stricter regulation, may be a testimony to Polanyi's prescient observation. The corporate reform in the U.S. these days is likely to have major impacts on business ethos elsewhere, if only because companies worldwide have interests to enlist themselves in the U.S. stock markets.

No doubt the direction of the reform remains unclear. "Command economy" is definitely not the way for any modern society. The problem is, laissez-faire fanatics are usually also those who choose to ignore the flaws of laissez-faire.