No just business as usual, Economist magazine, East India Company, Daniel Drew, South Sea Company, Mississippi Company, Wall Street, John Law">
WorldCom: media excuses corporate greed
BY PETER BOYLE
In the wake of the US$3.8 billion WorldCom scam — the biggest corporate fraud in history — the capitalist media has gone into damage control.
At first, the big business media felt compelled to engage in a bit of breast-beating about executives' greed and express worries about the moral health of the capitalist system (with even a doff of the cap to Karl Marx in some articles). Then followed a few calls for stiff punishment of the wrong-doers and, finally, assurances that everything would be all right in the end.
One of the corporate media's most audacious attempts to put a favourable spin on the WorldCom scandal came in an article by John Micklethwait and Adrian Wooldridge in the June 23 Washington Post, boldly headlined: "A corporate crisis? No, just business as usual". Micklethwait is the US editor of the conservative British Economist magazine and Wooldridge is its Washington correspondent.
"Corporate scandals have been with us ever since the first chartered joint-stock companies emerged in Tudor times. Looking for greedy executives? Try the 'nabobs' of the East India Company, who built some of Britain's finest stately homes with the money they extorted from Bengal.
"Looking for perfidy on Wall Street? Try the second half of the 19th century when rogues such as Daniel Drew manipulated the stock of railroads like the Erie (One song went, 'When Uncle Dan'l says up/ Erie goes up/ When Uncle Dan'l says down/ Erie goes down/ When Uncle Dan'l says wiggle waggle/ Erie bobs both ways').
"Looking for suspect accounts? In the last quarter of the 19th century, more than 700 American railroad companies, which together controlled more than half the country's rail track, went bankrupt."
Micklethwait and Wooldridge cite the infamous scandals involving the South Sea Company in London and the Mississippi Company in Paris in 1719-20.
"The unscrupulous businessmen and courtiers behind both companies had ambitions far greater than cornering a little slice of the energy market; they turned their two companies, which had originally been founded to trade with Spanish America (the South Sea) and settle Louisiana (the Mississippi), into devices to restructure their respective countries' entire national debts. In the process, they built up a financial bubble far greater than Wall Street in the 1920s or Japan in the 1980s.
"In Paris, the mastermind, a charming Scot called John Law, was also the finance minister. No sooner had Law placed the Mississippi Company at the heart of the nation's finances, than he began to issue shares. Mobs of would-be investors, from aristocrats to valets, besieged Law's offices in the Rue Quincampoix. Law allowed his punters to buy shares in installments, paying 10 per cent of the purchase price each month; at the same time, he provided loans from the Banque Royale on the security of the shares.
"At the height of the bubble, he even sold call options, allowing investors to pay a deposit of 1000 livres for the right to buy a 10,000 livres share within the next six months. 'It is inconceivable what wealth there is in France now', mused one observer. 'Everybody speaks in millions. I don't understand it at all. But I see clearly that the God Mammon reigns an absolute monarch in Paris.'
"When the crash came, it was spectacular. Throughout the early months of 1720, Law had to issue increasingly harsh orders to stop people converting their money into gold or silver. But still the Mississippi Company's share price tumbled. Eventually, amid riots and an outbreak of plague, he fled, false passport in hand, to Brussels, leaving the French economy in complete disarray. The eventual collapse of the South Sea Company was only slightly less disastrous. The British government was forced to nationalise the company, and the chancellor of the exchequer and several South Sea directors were dispatched to the Tower of London.
"The damage wrought by this was immense. The collapse of the Mississippi Company ruined the French economy (which was then the richest in the world) for a generation, helping pave the way for the revolution of 1789."
So what lesson do Micklethwait and Wooldridge draw from this history of corporate greed? It is that the "wrong-doing of the villains" is not as damaging as "the remedy society applies" (such as anti-trust laws and corporate regulation) and the political "backlash against corporate malfeasance can sometimes do more damage than the malfeasance itself".
Well, that's it folks: corporate greed has to be accepted because trying to prevent or punish it is more dangerous — it may even spark a revolution!
From 91×ÔÅÄÂÛ̳ Weekly, July 10, 2002.
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