Genuine capitalism is the economic system most consistent with freedom. But that is not the system we have today.
WASHINGTON, Oct. 12, 2015 – When it comes to moral and ethical behavior, Wall Street, big business in general, leaves a lot to be desired.
Recent events on Wall Street and revelations about Volkswagen seem to be only the tip of a very large iceberg. And no one ever seems to pay a price for bad behavior.
Former Federal Reserve chairman Ben Bernanke says that a number of Wall Street executives should have gone to prison for their roles in the financial crisis that gripped the country in 2008 and triggered the Great Recession.
Bernanke argues that in addition to the corporations, individuals should have been held more accountable. “It would have been my preference to have more investigations of individual actions because obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm,” he said.
Asked if someone should have gone to prison, he replied: “Yeah, I think so.”
According to The Economist,
“America’s prosecutors ought to honor their promise to go after the individuals responsible for corporate crimes, instead of just punishing companies’ shareholders by levying big fines. Most of the recent banking scandals have ended not in the courtroom, but in opaque settlements and large fines. Earlier this month (September) the Department of Justice announced a $900 million settlement with GM, America’s largest carmaker, for failing to recall cars with an ignition switch defect blamed for crashes which killed at least 124 people and injured 275. Prosecutors said (unnamed) managers at GM had knowingly ignored the potentially deadly effects of the fault, and put profit before safety. Yet they announced no charges. That has to change.”
In the case of Volkswagen, the tagline for its luxury models, “Truth In Engineering,” has shown to be far from the truth. In September, the EPA charged the company with installing illegal software in its diesel engines to skirt environmental standards.
The technology, designed to conceal emissions of nitrogen oxide, a potent contributor to smog as well as asthma, lung cancer and a variety of respiratory diseases, affects some 482,000 VW and Audi diesel cars sold in the U.S. since 2008. VW ultimately admitted to systematically cheating on its exams.
The revelation of Volkswagen’s behavior is only the latest in a series of episodes that have shown less than honesty and transparency on the part of General Motors, Toyota and other automakers. In the case of Volkswagen, departing CEO Martin Winterkorn may leave with a pension-plus-severance package worth $167 million. A Gallup Poll of confidence in American institutions found that “big business” came in second to the bottom, just above Congress, with only 21 percent expressing “a great deal” or “quite a lot” of confidence in it.
For many years tobacco companies told us that their products were safe while their own research, which they suppressed, indicated precisely the opposite. Now, the facts are clear. The World Health Organization says tobacco kills nearly 6 million people each year. More than 5 million die from smoking and the rest from exposure to second-hand smoke.
Yet, the U.S. Chamber of Commerce, which claims to represent the interests of more than 3 million businesses, is supporting efforts around the world to resist tighter controls on tobacco use.
Thomas Donohue, the chief executive of the chamber and a strong supporter of “crony capitalism,” has eagerly embraced the tobacco industry. He has personally lobbied the Congress against anti-smoking legislation, and publicly vowed to fight “outrageous settlement fees in state after state.”
According to The New York Times,
“When the Irish prime minister visited the U.S. Chamber of Commerce last year, he had a message to deliver. Ireland’s economy was recovering and his country was still open for business. ‘Call me any time,’ he told business leaders. But Thomas J. Donohue…had his own agenda. During the visit, he tried to persuade the prime minister to reject Irish anti-smoking legislation that would require tobacco companies to sell cigarettes in plain packages with images of diseased lungs or cancer patients.”
Under Donohue, the Chamber of Commerce has spent more than $1.1 billion on lobbying, and last year it had 168 lobbyists working on its behalf. Donohue’s salary was $5.5 million in 2013, more than 10 times what his predecessor earned in his last full year, 1996. The chamber’s goal is hardly implementing a genuine free enterprise system.
Instead, it embraces a policy of government subsidies and bailouts and appears to have embraced the very approach of denying the reality of tobacco’s harm that the industry itself has so long embraced. This is the kind of crony capitalism for which those who genuinely believe in free enterprise have contempt.
In recent years, we have seen once respected firms such as Merrill Lynch exposed for publicly promoting virtually worthless Internet stocks that its own analysts were disparaging in private. In the case of the accounting firm Arthur Andersen, it is clear that Andersen knew that Enron’s accounting was questionable, but it didn’t want to lose the client.
And the $52 million in annual fees that it paid. Andersen cut corners, destroyed documents and participated in fraud.
It is difficult to understand exactly what is being taught in our business schools. An Aspen Institute study of about 2,000 graduates of the top 13 business schools found that business school education not only fails to improve the moral character of students, it actually weakens it. The study examined student attitudes three times while they were working toward their MBAs, focusing on three points during their studies: on entering the program, at the end of their first year and upon graduating.
Those who believed that maximizing shareholder values was the prime responsibility to the corporation increased from 68 percent upon entrance to 82 per cent by the end of the year. In another study, students were asked if given a 1 percent chance of being caught and sent to prison for one year, they would attempt an illegal act that would net them (or their company) a profit of more than $100,000. More than one-third responded “Yes.”
Now revealed for all to see, the behavior of many of our business leaders holds up a mirror to the serious problems we face. It is particularly important for advocates of free market economics to make clear that this behavior is a challenge to capitalism itself. The first principle of free markets−transparency and trust−have been challenged.
Sadly, free markets are genuinely embraced more often by intellectuals−Milton Friedman, Hayek, Von Mises−than businessmen. All too often, businesses seek government subsidy, bailout and intervention to keep competitors out of the market.
When Congress acted to eliminate the Civil Aetonautics Board and the Interstate Commerce Commission and open up the airline and trucking industries to real competition, it was the industries themselves that opposed deregulation, for they had found a way to control the government agencies involved in their own behalf.
Those who have worshiped at the altar of big business have, it seems clear, been following a false god. Too many politicians in both parties, having received large sums from business and Wall Street, have been reluctant to make certain that the market is working in a way to assure investors and others that our economy is something more than a shell game.
Those who argue that the concept of business ethics is something other than an oxymoron must meet a difficult burden proof. Looking at Wall Street, Volkswagen, General Motors and the tobacco companies, it is difficult to see how they can. Genuine capitalism is the economic system most consistent with freedom. But that is not the system we have in place today.
In the end, it is not the enemies of capitalism who threaten it most, but those of its practitioners who have distorted its very essence.Click here for reuse options!
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