Vol.2 No.27, 09 October 2002

Should we Rescue Capitalism by Regulation?

Margaret Legum

'Remember you heard it here first', I told an audience at a lecture at the UCT Summer School in 2001 referring to coming destruction of their pensions. I recalled these words when gloomily contemplating the halving of my own pension in the past month. Will July 2002 be seen with hindsight as the beginning of the end of unregulated capitalism?

Unregulated capitalism is unravelling from within its heartland, the United States. That is where investment bankers prevail, their interest in share value as opposed to real value blinding them to the inevitable collapse of stock markets that bore little relation to their asset base. And that is where panic selling is most potentially destructive because all our stock markets have been forced into their ambit. Both Africa and Latin America have already been seared to the core by the unfettered markets. Now it may be the turn of the rich.

There is nothing wrong with the free market as a way of getting goods and services produced and distributed. Indeed it is the only way to do so that works. But the free market must be regulated. Without rules, the most ruthless prevails, the largest and barest knuckles take over. Without rules 1984 becomes inevitable. That is why we all do what suits the American economy: because it is the strongest. And American politicians must do what their largest election paymasters want, and they are the large corporations.

The immediate cause of the current collapse is that unregulated capitalism has created massive corruption within large corporations not just in America but worldwide. They have successfully argued that regulation creates nasty inefficient bureaucracies that put the brakes on enterprise. And they have had the active collusion of the Big Five accounting firms. These firms, trading on their professional status, have not only misled the public, but also helped create the culture that pays millions to executives and throws thousands into penury.

These firms audit all the FTSE 100 top companies in Britain; they generate $65 billion in revenue and employ over half a million people. The consultancy business with their clients brings in four times their auditing fees, so why should they upset a lucrative applecart? They regularly exchange staff with their clients even 'seconding' staff to the British Treasury - and see no contradiction is taking fees from competing clients.

Before the Enron scandal Andersen had already signed off' the accounts of the Australian insurance company HIH, which thereafter collapsed with liabilities of A$4billion; and had to settle with shareholders of Sunbeam Corp for $110 million. Deloitte Touche had been involved in financial scandals at J.C. Nicols and Tarko College in the States. Ernst and Young agreed in 2000 to pay Cendant shareholders $335 million for failing to expose fraud. KPMG were the subject of a suit by shareholders of Rite-Aid, alleging that the company's chairman had engaged KPMG in consultancies worth 1,5 million 'as a sweetener and to ensure (its) continued cooperation'. The US Securities and Exchange Commission had investigated PricewaterhouseCoopers because its staff had financial interests in the companies being audited; and in 2001 the firm agreed to pay $55 million to settle a class action by shareholders of MicroStrategy Inc. Only space precludes a longer list of the verneukery in which these firms have indulged.

These five firms have enormous political influence. Perhaps that is why we have heard so little of their activities. Their contribution to political parties in America runs into millions. The British government spent 133.5 million on their services in 2000. And its Inland Revenue gives their clients, the large corporations, special blind-eye-turning treatment over tax assessment.

The signs of collapse have been there; but they have been drowned by the frantic talking up of the American markets upon which, due to the deliberate globalisation of all markets, we are all largely dependent. I say deliberate to contradict the assiduously cultivated falsehood that market globalisation is inevitable.

Much human activity is benignly globalised information, scholarship, research, cross-cultural hospitality, travel and even some large-scale and niche production, like minerals, shipbuilding, arts and crafts. But we do not need the skies criss-crossed with
cargoes of butter and apples and identical clothing and tackies. We do not need to buy out of season fruit that has been picked unripe a year before we eat it, or chicken breasts that have been flown elsewhere to be injected with beef protein so that it will absorb water to give it weight.

That globalisation of mass-produced trade is not only bad for our health and taste buds, not only the source of unnecessary aircraft pollution, it is also destructive of agriculture and industry in less capitalised countries. The requirement to compete internationally is good only for countries and people who are already ahead in the race.

Once we understand that we have been sold a pup in the injunction to fling our economy into the global piranha pool we will start focussing on growing our own markets and our own capital.

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