Ethics, economic instability and world governance

President Bush assures us that he is "an optimist" and that "the fundamentals of the American economy are strong." It is all too reminiscent of what President Hoover told us in 1929. The "fundamentals" were strong then too, just as the American and world economies were collapsing into a financial, industrial and agricultural abyss, with unemployment rising, even in the richest countries, to peaks of 25 or 30 per cent.

But this isn't 1929. This is 2002. Things are different now.
President Bush knows much more than President Hoover in 1929. He is, we are told, the first President of the United States to hold an MBA.

Alan Greenspan and other central bankers around the world, are much more knowledgeable and have much more effective instruments of control than their equivalents in 1929.

We are all much more knowledgeable, more "sophisticated," more able to manage our economic affairs than we were then.

Is any of this true?

Or, in reciting these comforting thoughts, are we just whistling to keep our spirits up? Perhaps we are exercising one last option to shore up our stock markets, because we don't know what else we can do.

Certainly, we can't claim to be more ethical in our conduct now than seventy years ago. Indeed, the corporate buccaneers of those days were amateurs compared with the professionals of today.

"The Fabric of Economic Trust"

UPI Correspondent, Dr Sam Vaknin, has recently reminded us that the "entire edifice of the market and price mechanism critically depends on trust. If people do not trust each other or the economic 'envelope' within which they interact, economic activity gradually grinds to a halt."

Earlier, many of us thought that Enron and Anderson Accounting might be exceptions to the generally trustworthy character of business institutions. We now realise that their conduct permeates much if not most of the economy. Rather than the exception, it may be much closer to the rule.

It is also clear that knowledge of and participation in that behaviour run deep. Distinguished economist and former high-level international civil servant, Gunnar Tomasson, asks "Where have all the flowers gone?" He goes on to say, "It is impossible to exaggerate the supermarket of [corporate] crime. It's greed on steroids. Why didn't we know about it sooner? What amazes me is that there are thousands of people who could have been whistle-blowers, from the boards of directors to corporate insiders, to the accounting firms, to the lawyers working for these firms, to the credit-rating agencies. All these people! Would a despotic dictatorship have been more efficient in silencing them and producing the perverse incentives for them all to keep quiet?"

We're told that some miscreants will pay heavy penalties for their crimes. Some have already been charged. Some might be jailed.
Less attention has been given to the clear implication that the stockmarket boom of the 1990s was based, if not wholly, at least in large part, on fraud and so was largely a myth.

That is a crucial "fundamental." No jailing of however many perpetrators will alter such a basic fact.

When the fraud is taken away, is anything left of the boom we thought we had? Does anything solid remain of the growth in production and productivity we were told was taking place?
Yes, there is something left but we have yet to see whether it is enough to restore the world economy to some degree of robust good health.

A Culture of Corruption and Fraud

Apart from corporate corruption, has there been even more extensive corruption? In the United States and other countries formerly believed to be blessed with a culture of integrity, has there developed a veritable culture of corruption and fraud? In his Letter of March 2002, Dr Kurt Richebacher wrote that "the ease with which American economists turn everything black into glaring white in assessing the US economy keeps amazing us. Despite overwhelming evidence, it took them a long time to concede the possibility of a recession. Now they see the economy's immediate recovery in every statistical blip." Dr Richebacher also claims that corruption in US official statistics, including "hedonic" pricing, has exaggerated calculations of growth in the United States Gross Domestic Product and in productivity.

If this is so, we have been living in an official and corporate environment in which "the fabric of economic trust" may have been torn to shreds.

This abuse of economic trust is not confined to the United States.
We know it has occurred elsewhere. In Australia, the HIH insurance business collapsed with losses of $A5.3 billion. The Australian of 8 August 2002 reported that the company's chief executive, in his evidence before the HIH Royal Commission, appeared to think it was not aberrant behaviour to be "triggering a virtual avalanche of corporate largesse; lending company money to mates; bidding against an HIH subsidiary for a stake of Lloyd's business; and overseeing soaring bonuses for his executives, even as HIH plunged towards the abyss."

We still lack comprehensive data about the full extent of such corporate conduct in the United States, Australia and elsewhere; but the broad outlines are clear and confront us with issues of great ethical as well as economic consequence.

Official Paralysis

Much the most important question now is what we are going to do about it. Are we really confronting the substantive issues yet or are we relying on a sort of Micawber-like optimism that, if our problems don't go away, something instead will magically turn up.

Governments and international agencies appear paralysed. In the last twenty years, they have become so used to abdicating their public responsibilities to the "market" that they seem unable any longer to play a significant role in restoring stability and promoting prosperity.

So far, the United States Government has put handcuffs on a few corporate defendants and arranged "perp walks" for the media. Richard Reeves has described perp walks as "a little conspiracy between police and reporters to produce photos [of perpetrators] for morning papers and film for evening news."

Otherwise, after all the cuts he's already made, Alan Greenspan might reduce interest rates yet again. Even the optimists must doubt whether that will have much positive effect - and might wonder whether, with some major financial institutions delicately poised, it might even make things worse.

Other governments are doing no better. According to the Australian Government's "Foreign Minister on steroids," Australia will stand shoulder to shoulder with the Americans if they invade Iraq. With even more doughty steadfastness, the Government has welcomed the fast-track trade legislation passed by the United States Congress because it enhances Australia's prospects of negotiating - quickly - a free-trade-area agreement with the United States.

Evidently, the Australian Government sees no cause to re-think its investment and trade policies or its relationship with the country which has dominated its economic and financial experience in recent decades.

Generally, there is little evidence of new thinking or new policies by other governments or by those international agencies which might be expected to give some lead.

As a result, paralysed and impotent, governments and international agencies wait for our economies to be engulfed by what might well be an economic and financial tsunami. They trust desperately in their "strong fundamentals" and hope and pray, as they did in 1929, that, since doing something might be too dangerous, doing nothing will be enough.

Those of us who lived through the Great Depression remember how often we were assured that "prosperity is just around the corner." Until we fought the most terrible and widespread war in human history, that prosperity never came.

This time, we must take effective action to halt the slide into deep economic depression, with all its political and strategic consequences.

If governments won't take firm action, we must use direct democratic initiatives to induce them, to use an Australian expression, "to move their bloody boots." Right now, the information, biotechnology and quantum revolutions - as well as other scientific and technological advances - promise unprecedented benefits to all mankind. We must sharpen the quality of our national and world governance in ways to ensure that we can all enjoy those benefits. Above all, we must arrest the drift to catastrophe, through terrorism, conflict and economic collapse, before it is too late.