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By Pandita Indrani |
July 7, 2002: The financial news in the capital of world capitalism, New York, is dominated by insider trading by the queen of American lifestyle, Martha Stewart, and an apparent $3.9 billion fraud by communications giant, WorldCom. Stocks have taken a severe beating in both companies with WorldComís moving from $15.88 in December 2001 to 83 cents on Tuesday 25, June. It is important that we understand what is happening here because this is the type of white-collar crime that is taking place in the new global economy. If it has not yet happened in the Caribbean on this scale, at least, it is bound to happen sometime in the future if we are not vigilant. It is the new kind of crime of which we ought to be aware.
WorldCom seems to have cooked its balance sheet, for the last five quarters, to show a profit of $1.4 billion, when it should be really be showing a net loss for the year, 2001. All indications point to the company filing for bankruptcy, which would make it the largest in US history. Analysts see similarities between the current fraud at WorldCom and that of recently disgraced, Enron. It is noteworthy that both companies share the same auditors.
Both Martha Stewart Living Omnimedia and WorldCom companies are going to be affected by layoffs, falling shares, and profits. The market has a great many telecommunications operations already so WorldCom is not a likely buyer's item. It does not seem likely that the diversified businesses would close down; they are more likely to go into downsizing mode.
Federal investigators are investigating Martha Stewart for selling off her stocks in ImClone Systems the day before it fell, and also charges of lying to authorities over the issue. The Securities Exchanges Commission, which is supposed to monitor these things on Wall Street, does not seem to have the teeth for the job. A major problem for Martha Stewart is going to be in the area of brand name. Her name carries with it a certain image in the lifestyle market where she is into magazine publishing and has a syndicated show on 150 television stations. Suspicion of insider trading fraud is likely to adversely affect her image in a mercurial advertising market that responds swiftly to consumer concerns. Already, the controversy is worrying several advertisers, and competitors will, no doubt, try to capitalize on this. But, as yet the market has not recorded a loss of confidence in Martha Stewart.
It is tennis celebrity, Martina Navratilova, who, earlier this week, lamented that American decisions are guided, not by moral or ethical concerns, but by economic ones. So that when the US President, George Bush, sounds a note of moral indignation at WorldComís apparent huge betrayal of investor and employee trust, one looks for the bottom line - in America that means 'what is it costing whom.'
One expects the President to take a hard line on these two issues that are now making the headline news, because it will help to soften the 'big business' image of the President and his Republican party. He is going to want to soften the exploitative image of the American corporate world that most of the world has about America and global capitalism. He is not likely, however, to go too far beyond verbal condemnations because of the intimate relationship between his party and the corporate world. But he will need to work for a balance between being friends with the corporate world and meeting the concerns of voters and workers.
While capitalism generates the greatest wealth amongst a select few, it has the negative quality of nurturing the greed in humanity, making them less human. The pursuit of wealth is not accompanied by dharma or ethical concerns and this is what makes American capitalism so unpalatable. Everyone is in a hurry to feed their greed rather than their needs. Indeed, Wall Street has been renamed 'Crook Street' by the Daily News newspaper in New York.
It is, perhaps, unrealistic to expect that the corporate world is likely to accept dharmic or ethical guidelines in business, unless such guidelines are legally mandated. One must grant that American society, at least, appears to be transparent in corporate fraud and the political players make the right kinds of noises at the right times, even if we remain unconvinced by their authenticity. And this is a major difference between how countries in the developed and developing world deals with public fraud.